What are key audit matters? How do these affect the format of the audit report?

Explain the effect of the misstatement on the auditor's report and the audit opinion in each scenario stated below:

(i) You have completed the audit of Saibal Resort Ltd (Saibal Resort) for the year ended 30 June 2015.

The audit partner suggested that the value of properties on the West Coast were overstated by

$16 million, a figure which was twice the level of materiality set for the audit. As a result of

discussions with the audit committee, the CEO of Saibal Resort agreed to revise the valuations

downward by $10 million. All other issues were resolved to the satisfaction of the audit partner,

resulting in an overall misstatement of the financial report of $6 million.

The audit partner is now considering the effect of the misstatement on the auditor's report.

(ii) Jason King Ltd is a building contractor with a varying workload. In order to compensate for the

irregularity of its contracted building projects, Jason King also purchases large vacant blocks

of land that it later subdivides for the construction of houses and units. Jason King then sells

these on its own account. Your analysis strongly suggests that the apportionment of costs to

houses and units sold has been kept low to boost profits. In your opinion, this has resulted in

the overvaluation of the unsold properties. The directors of the company do not agree and

hold to their view that the stock of properties is correctly valued.