Question 7. Audit Reporting (15 marks)

1. There are three ASAs that provide primary guidance to the auditor about the different types of audit opinions that might be expressed. For example, ASA700 provides guidance about unqualified and unmodified audit opinions.

Identify the other two ASA numbers and their titles and for each ASA number, indicate which specific type(s) of opinion the standard provides guidance about. (3 marks)

2. Key Audit Matters (KAMs) are identified and explained for ALL types of audit opinion that may be expressed in the independent auditors report for financial statements. Is that statement TRUE or FALSE? (that is, choose True, or False) (1 mark)

3. During your attendance at the annual stocktake and undertaking of normal required follow-up procedures, you identify a series of obsolete inventory (stock) items. This was brought to the attention of your audit client, GPP Limited. Their follow-up investigation revealed that under the lower of cost and net realisable (NRV) rule, inventory was in fact overstated by $10 million. GPP directors decided not to adjust the value because the reports were close to being issued and they considered the overstatement to be immaterial. GPPs draft financial statements disclose (unadjusted) inventory balance is $385 million and profit before tax is $695 million. Your subsequent testing of the GPPs overstatement analysis shows you are 95% confident the overstatement is in the range of $6-16 million.

What type of audit opinion would you issue, and briefly explain why (indicate the nature of the matter giving rise to any modification if there is one)? (3 marks)

4. You are auditing UHire Limited (UHL) for the year ended 30 November, 2018. Your procedures adopted for auditing the property, plant & equipment (PPE) account has identified a material misstatement. The misstatement is not pervasive. You have noted that UHL has not changed depreciation rates for the last 4 years despite significant recent technological developments in their industry. It is your auditing professional judgement that these significant recent technological developments require PPE useful lives to be reduced, resulting in increased depreciation expenses. UHLs directors do not accept your judgement that not making the changes result in a breach of impairment test requirements of Australian Accounting standards. They have refused to change the depreciation rates.

What type of audit opinion would you issue, and briefly explain why (indicate the nature of the matter giving rise to any modification if there is one)? (3 marks)

5. Your audit of BTI Limited was extremely challenging this past year ended 31 December, 2019. The BTI accounting department was grossly understaffed meaning transactions were not processed promptly and associated account reconciliations were not performed resulting in the company not keeping and having appropriate books and records available for the entire period under audit. A temporary accountant was employed by BTI in an effort by the directors to sort out the mess but by year end she had not even been able to reconcile the bank account. You are not satisfied all transactions for the year ending 31 December, 2019 are reflected in the financial report.

What type of audit opinion would you issue, and briefly explain why (indicate the nature of the matter giving rise to any modification if there is one)? (3 marks)

6. In the Lakeside Company case study, what was the name of the previous auditor and what type of opinion did that previous auditor express to the Lakeside Company? What was the reason for the type of audit opinion they expressed? (2 marks)