You are the auditor of Air Gourmet Ltd, a company that provides catering services to an international airline, Alliance Airlines Ltd. On 15^th July (year ends at 30^th June) the company was contacted by the legal team of Alliance Airlines alleging that food provided by Air Gourmet had caused serious cases of food poisoning resulting in the diversion of a number of international flights to alternative destinations for hospitalisation of passengers.

The legal team has advised that the passengers have commenced legal action against Alliance Airlines, claiming $100 million in damages as passenger compensation. The balance sheet of Air Gourmet discloses net assets of $65 million.

The insurers of Air Gourmet have indicated that the insurance policy may not fully cover Air Gourmet given that the company had recently been fined by the Indonesian Transport Authority for significant breaches of Food Handling legislation. The reputation of Air Gourmet has already been affected by this and their income has fallen by 45% for this financial period.

 

The client advises you that they are relieved that the event has happened after the balance date, as it does not need to be disclosed to the shareholders until the next financial year. Management of Air Gourmet has decided that this event will not be disclosed in the financial reports at all as they feel it will mislead investors. 

 

ii) You are the auditor of a well-known music company, Sound of Music Ltd, providing recording and studio facilitates to popular musicians. The company had undertaken a significant restructure during this reporting period.

As part of this process, a property in the Melbourne CBD owned by Sound of Music which was used as a recording studio has been decommissioned. Further arrangements have been made to sell this property to a hotel chain by mid-October (Year ends at 30th June).

The property has been valued and disclosed in the financial reports at its' carrying amount with no reference being made to the future sale. The company directors do not want information about the impending sale to be included in the financial statements of the current period. 

 

Required:

1) In relation to each of the scenarios i and ii above, and with reference to appropriate auditing standard(s), identify the appropriate audit opinion likely to be issued by the auditors?

Answer rating: 100% (QA)

For scenario i the appropriate audit opinion likely to be issued by the auditors is a qualified opin... View the full answer