The following are independent and material situations:

a) A client holds a note receivable consisting of principal and accrued interest receivable. The notes maker recently filed a voluntary bankruptcy petition, but the client did not agree to reduce the recorded value of the note to its net realisable value, which is approximately 20 percent of the recorded amount.

b) A client changes its method of accounting for the cost of inventories from FIFO to weighted average. As the change has a material effect on the financial report and has not been disclosed as required by Australian accounting standards, the auditor requests the clients management to disclose the information but the request was rejected by the client.

c) Due to losses and adverse key financial ratios, an auditor has substantial doubt about a clients ability to continue as a going concern for a reasonable period of time. The client has adequately disclosed its financial difficulties in a note to its financial report, which do not include any adjustments that might result from the outcome of this uncertainty.

Required:

For each of the above situations, indicate the appropriate type of audit opinion you would issue and justify your decision for issuing that particular audit opinion. (3 x3 marks = 9 marks)

3.2 Assume you have decided to send positive confirmation letters to selected business customers in an audit. State any SIX steps the auditor should perform in undertaking a positive external confirmation for accounts receivables in a financial report audit, based on the requirements of relevant Australian Auditing Standards. Limit your answer to 2 lines for each of the steps.