Section A: Short answer questions (34 Marks) Question 1 (8 Marks) While completing your audit work of GR Ltd for the financial year ending 30 June 2018, you become aware of the following material matters: i) GR Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the wine to continue to develop in the bottle. On 20 July 2018, GR Ltd applied for a patent for the cap, only to discover that a competitor had lodged a similar application on 15 June 2018. The granting of GR Ltd's patent application is now in serious doubt. Management do not believe any change to the financial report is required. ii) A note to the financial report of GR Ltd refers to an agreement to sell its major subsidiary, Cleanskins Pty Ltd, to a rival wine company. This agreement was finalised the day before the financial report was to be signed and the sale is to take place a month after the audit report is to be signed. You have verified this transaction. However, when reviewing the 'Chairman's Review', which is to be included in the annual report that contains the audited financial report, you see that: Plans for expanding Cleanskins Pty Ltd's facilities are outlined; o The additional revenue to be generated over the next ten years as a result of this expansion is tabulated; and o There is no reference to the sale of Cleanskins Pty Ltd. Management believe that it is too late to make any changes to the annual report, as it is ready to be sent to the printers, as soon as the audit report is signed. Required: Assume that you are about to sign the GR Ltd audit report and it is 30 August 2018. For each of the subsequent events described above: 1. State the appropriate action (Adjust; Note disclosure; No action) required, if any, in relation to the GR Ltd financial report. (2 Marks) 2. State the type of audit opinion that you should issue for the audit of GR Ltd and give reasons for your answer. (6 Marks)