You are an audit manager of Bang and Jong, a firm of Certified Public Accountants. You are

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Question:

You are an audit manager of Bang and Jong, a firm of Certified Public Accountants. You are currently responsible for reviewing the appropriateness of your firm’s proposed auditor’s report of financial statements for two unrelated audit clients.

Wookie Berhad (Wookie)

The draft financial statements for Wookie for the year ended 31 December 2017 disclose the following:

Note 1 Significant Event

During the year, Wookie sold a significant amount of its business and certain assets (plant and equipment, and inventory) and commenced a systematic winding down of its operations. The group’s remaining assets (including property, trade receivables, and cash) were sufficient to meet the group’s liabilities, as of 31 December 2017.

Note 2 Accounting Policies

The consolidated financial statements have been prepared in accordance with Malaysia Financial Reporting Standards (MFRS). As described in Note 1, the group has commenced the winding down of its operation and the remaining assets have been restated to their net realizable values.

There are no other disclosures relating to the going concern assumption although the ‘significant event’ is referred to in the director’s report under the heading ‘principal activities and trading review’. The auditor’s report on Wookie’s financial statements for the year ended 31 December 2017 was unmodified.

Hyunnie Berhad (Hyunnie)

The consolidated financial statements of Hyunnie are prepared in accordance with Malaysia Financial Reporting Standards (MFRS). The draft financial statements for the year ended 30 June 2017 show profit before taxation of RM6.5 million (2016 – RM 5.3 million) and total assets of RM 35.5 million (2016 – RM3.3 million). The following matters require your consideration:

The basis of the accounting note states that the financial statements have been prepared in compliance with MFRS. However, the accounting policy note for FRS116-Property, Plant and Equipment and FRS138-Intangible Assets states that if an entity adopts the policy of restating instead of eliminating the accumulated depreciation/amortization when an asset is revalued, the gross carrying amount of the asset is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation/amortization is calculated as the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses.

Due to the timing and the nature of the adjustments, and the non-availability of audit evidence, we were unable to carry out appropriate audit procedures to satisfy ourselves as to whether the above adjustments were appropriate and complete and whether there were other consequential adjustments to be made to the accompanying financial statements

As no impairment tests have been carried out by Group and by the Company, we were unable to satisfy ourselves as to whether the quantum of the impairment losses recognized on the Software Development Costs and Goodwill is appropriate and consequently their carrying amounts.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as of 30 June 2017and the results of its operations, and its cash flows for the year.

The draft financial statements of Minho for the year ended show profit before taxation of RM2.5 million (2016 – RM 1.8 million) and total assets of RM6.3 million (2015 – RM 5.9 million). The relevant notes (in full) are as follows:

Comment on the suitability of the auditor’s report for Wookie and Hyunnie.