HI6026 Audit, Assurance And Compliance - Final Assessment

Question 5 (11 marks)

Consider the following independent situations relating to the audit of five different audit clients for year ended 30 June 20X8. Assume that all the situations are material. 

(i) A new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and has not been disclosed. A special meeting was held between the CFO and the Finance Team and the Lead Partner from the Audit team, but nothing was resolved. (2.75 marks)

(ii) A new start-up company specialising in air-drone mail/package delivery has grown strongly in the past year. Over the past three years the company has made consistent losses, borrowed heavily, experienced staff turnover and dealt with some significant regulatory and operational issues. Nonetheless, the current CEO believes the company is turning around and will soon improve profitability. She is a high wealth individual who has invested more funds (equity) into the company, which is fully disclosed. No material misstatements were noted in the Auditor’s report. (2.75 marks)

(iii) The Auditors of ROME, a high-profile bank, were unable to obtain sufficient and appropriate audit evidence concerning the carrying amount of ROME’s investment in ITA Pty Ltd as at 30 June 20X8. ITA Pty Ltd is a small firm of five financial planners in total. The auditors were denied access to the financial information of ITA, and they were not allowed to interview ITA’s Management. Consequently, the auditors were unable to determine the correct valuation of ITA Pty Ltd. (2.75 marks)

(iv) The introduction of a new accounts receivable system in August 20X7 resulted in numerous errors in accounts receivable. As at the date of the Audit report, management was still in the process of correcting the system errors. As a result of these issues, the Auditors were unable to determine whether any adjustments are required in relation to the recorded or unrecorded inventories and accounts receivables, as well as the elements making up the Income statement and the Cash Flow statement. (2.75 marks)

Required:

For each of the above cases, state the appropriate audit opinion that the auditor would require. Give reasons.