Question 1 6 Marks (a) Explain the 'audit expectation gap'. (3 marks) (b) Briefly discuss three issues that could cause an 'audit expectation gap'. (3 marks) Question 7 10 Marks (a) For each of the following situations, state the type of audit opinion which should be given (6 marks) Situation Audit Opinion A flood destroyed the client's offices and all the i. accounting records just before the end of the financial year. The client does not have another copy of the records. An entity is facing significant litigation as a result of ji. dumping oil in the ocean. This is adequately disclosed in the notes to the financial report. The client has provided a provision for inventory obsolescence of $250,000. Based on your audit iii. assessment you have determined that the provision should $300,000. Materiality for the client has been set at $80,000 and you are satisfied in all other material respects. The client refuses to include all liabilities in the iv. balance sheet and the auditor believes that the effect of this action is pervasive on the financial report. You are currently performing the audit of XYZ Limited. Your audit firm has been in dispute with management over the carrying value of brand names. Due to the materiality of the amounts v. involved you decided to engage an expert to perform an independent valuation. The result from the expert was close to your original estimate and still materially different to that of management. The directors refuse to amend the financial report. The auditor believes that the client's financial report presents a true and fair view of its financial position vi. and performance, and the report is in accordance with the Corporations Act. Question 7 (continued) (b) Describe the two types of subsequent events that are required to be considered as part of the audit of a financial report. Provide one example of each type. (4 marks)