Audit reports are of utmost importance as they are highly visible and often the auditors only means

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Question:

Audit reports are of utmost importance as they are highly visible and often the auditor’s only means to communicate with the users of the financial statements. For publicly listed companies with financial years ending on or after 15 December 2016, there is a new requirement for inclusion of a section titled “Key Audit Matters”.

(a)Provide one example of “Key Audit Matters” that a company may include with justifications as to why the auditor may choose to include that particular issue.

(b) For each independent situation below, discuss the situation and recommend the most appropriate audit report for the situation.

(i) During the audit of Best Bakery Equipment, you found that a material amount of inventory had been excluded from the company's financial statements. After discussing the problem with management, you are convinced that it was an unintentional oversight. Management appropriately corrected the error on the financial statements prior to the completion of your audit.

(ii) S.W. Woo Ltd. leases its manufacturing facility from a partnership controlled by the chief executive officer (CEO) and the major shareholder Mr. Woo. Your review of the lease agreement indicates that the rental fees are in excess of rental fees for similar buildings in the area. The company refuses to disclose this related party transaction in the notes to the financial statements.