Described below are situations which have arisen at two unrelated external audit clients of your firm....

 

 

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Described below are situations which have arisen at two unrelated external audit clients of your firm. The year end in each case is 31 March 20X4. Gable Ltd (Gable) Gable is an intermational company operating in the construction sector. The financial statements for the year ended 31 March 20X4 include cranes disposed of during the year with a carrying amount of RM220,000. Gable has accounted for the proceeds of the disposal in other income in the statement of profit or loss but has not removed the carrying amount of the disposed cranes from the statement of financial position. The directors refuse to amend the financial statements in respect of this matter because the buyer of the cranes has not yet collected the cranes which are still on Gable's premises. Gable uses sub-contractors who are paid a variable dally rate depending on the location and complexity of the construction project. The system used to process the payments to sub-contractors developed a fault during the year and many sub- contractors were paid at incorrect daily rates. The directors estimate that RM340,000 was overpaid and they have recorded a recelvable for this amount at 31 March 20X4. At the time of completion of the audit, RM25,000 had been received in respect of this balance. Your firm's enquiries during the audit revealed that Gable has not had any success in contacting any of the sub-contractors that are still to reimburse the company as they no longer undertake work for Gable. The directors refuse to include an allowance for doubtful debts in respect of the outstanding amount. Gable's total assets at 31 March 20x4 are RM42 3 million and profit before tax for the year then ended is RM7.6 million. Hip Ltd (Hip) The managing director of Hip refused permission for your firm to contact Dome Ltd (Dome), a customer, to confirm the balance of RM185,000 which was outstanding at 31 March 20X4. She claimed that the relationship between the two companies was particularly sensitive and that she did not want to upset that relationship. At the time of completion of the audit, RM15,000 had been received in respect of the outstanding balance and the managing director is confident that Dome will pay all outstanding amounts. No alternative audit procedures were available to establish the existence of the debt. Hip's total assets at 31 March 20X4 are RM5.2 million and profit before tax for the year then ended is RM1.5 million. Requirement: For each of the situations outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each auditor's report. Described below are situations which have arisen at two unrelated external audit clients of your firm. The year end in each case is 31 March 20X4. Gable Ltd (Gable) Gable is an intermational company operating in the construction sector. The financial statements for the year ended 31 March 20X4 include cranes disposed of during the year with a carrying amount of RM220,000. Gable has accounted for the proceeds of the disposal in other income in the statement of profit or loss but has not removed the carrying amount of the disposed cranes from the statement of financial position. The directors refuse to amend the financial statements in respect of this matter because the buyer of the cranes has not yet collected the cranes which are still on Gable's premises. Gable uses sub-contractors who are paid a variable dally rate depending on the location and complexity of the construction project. The system used to process the payments to sub-contractors developed a fault during the year and many sub- contractors were paid at incorrect daily rates. The directors estimate that RM340,000 was overpaid and they have recorded a recelvable for this amount at 31 March 20X4. At the time of completion of the audit, RM25,000 had been received in respect of this balance. Your firm's enquiries during the audit revealed that Gable has not had any success in contacting any of the sub-contractors that are still to reimburse the company as they no longer undertake work for Gable. The directors refuse to include an allowance for doubtful debts in respect of the outstanding amount. Gable's total assets at 31 March 20x4 are RM42 3 million and profit before tax for the year then ended is RM7.6 million. Hip Ltd (Hip) The managing director of Hip refused permission for your firm to contact Dome Ltd (Dome), a customer, to confirm the balance of RM185,000 which was outstanding at 31 March 20X4. She claimed that the relationship between the two companies was particularly sensitive and that she did not want to upset that relationship. At the time of completion of the audit, RM15,000 had been received in respect of the outstanding balance and the managing director is confident that Dome will pay all outstanding amounts. No alternative audit procedures were available to establish the existence of the debt. Hip's total assets at 31 March 20X4 are RM5.2 million and profit before tax for the year then ended is RM1.5 million. Requirement: For each of the situations outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each auditor's report.

Answer rating: 100% (QA)

1 Gable limited Sale of crane issue As Gable limited has accounted for the proceeds of the sale of the crane in the income statement it is not correct to recognize the cranes in the financial position ... View the full answer