New Edge Limited (NEL) is Software Technology located in Wellington and also listed on the New Zealand
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Question:
New Edge Limited (NEL) is Software Technology located in Wellington and also listed on the New Zealand Stock Exchange (NZX). It prepares general purpose financial statements. Assume that you have been appointed an external auditor for NEL. While finalising the auditor's report for NEL for the year ended 30 June 2021, your review of audit team's working papers relating to Nel audit reveals following two matters:
- The audit team identified a significant risk relating to revenue due to NEL's revenue recognition policy. Its policy says that revenue will be recognised By NEL when goods are despatch to the customer rather than on receipt of the goods by the customer. According to audit team this policy may lead to a significant risk of fraud because management may seek to inflate the results. While auditing the revenue cycle, the audit team responded to the risk by performing extensive testing, having discussions with management and those charged with governance, and independently assessing the impact of alternative methods for revenue recognition. At the end of the procedures, the team concluded that revenue is not materially misstated.
- The financial statement of NEL disclosed a note stating that they the company signed an agreement to sell its major subsidiary, Cybernet Limited (Cybernet). However, when reviewing the 'Chairman's Review' section included in NEL's annual report, you noticed that the chairman refers to plans for expanding Cybernet's facilities and the additional revenue to be generated over the next three years as a result of this expansion. When you brought this matter to management and those charged with governance, they believe that it is too late to make any changes to the chairman's review
Required:
a. Determine and justify the appropriate audit opinion you will issue for New Edge Limited
b. Explain any further implications of the above two matters on the auditor's report and opinion.
Related Book For
Accounting for Decision Making and Control
ISBN: 978-1259564550
9th edition
Authors: Jerold Zimmerman
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