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Tutorial solutions - Audit reporting

Course

Concepts In Biochemistry And Microbiology (SHGB6115 )

16 Documents
Students shared 16 documents in this course
Academic year: 2020/2021
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Universiti Malaya

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Tutorial solutions – audit reporting

Question 1

 Title  Addressee  Introductory paragraph  Responsibilities  Scope  Opinion  Date  Address  Signature

Question 2

An unmodified report follows a standard template prescribed in ISA 700, whereas a modified report has been amended from this template either by giving:

  • A modified report with an unmodified opinion where the report still states that the FSs give a true and fair view, but an additional paragraph (either an EOM or Other Matters paragraph) has been added.
  • A modified report with a modified opinion (where the report gives either an ‘except for’ opinion, adverse opinion or disclaimer of opinion).

Question 3

Modified “except for” opinion

  • Given for either disagreements or limitations of scope with are material but not pervasive.
  • “In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements give a true and fair view...”

Adverse opinion

  • Given for disagreements which are material and pervasive.

“In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion paragraph, the financial statements do not give a true and fair view...”

Disclaimer of opinion

  • Given for limitations on scope which are material and pervasive.

“Because of the significance of the possible impact of the uncertainties, described in the Basis for Disclaimer of Opinion paragraph, we do not express an opinion on the financial statements...”

Question 4

a) Roscoe Ltd

  • Inventory should be included in the financial statements at the lower of cost and net realisable value.
  • As the directors have included the inventory at its original cost this represents a disagreement over the accounting treatment.
  • Inventory is overstated by £203,000 which is 4% of profit before tax which is immaterial to the financial statements.
  • The auditor will issue an unmodified audit opinion.

b) Gladstone Ltd

  • A material uncertainty exists over the going concern presumption as the investigation by the government committee will not be concluded until after the financial statements are published.
  • If the auditor is satisfied that the disclosures included by the directors are adequate then an unmodified audit opinion can be give, however the report will be modified to include an emphasis of matter paragraph explaining the nature of the uncertainty.
  • If the auditor is not satisfied as to the adequacy of the disclosures made by the directors then an adverse opinion.

c) MakeIt Ltd

  • The new manufacturing plant should be depreciated from the date when it is available for use, which is from 1 January 2009. The directors have not depreciated the plant over a sufficiently long enough period and this represents a disagreement over accounting treatment.
  • Six months of depreciation has been charged, amounting to £140,000. A full year's depreciation charge of £280,000 should have been made.
  • Depreciation is therefore understated by £140,000.
  • This amounts to 10% of profit before tax and is therefore material, but not pervasive (since the issue impacts just one balance in the P&L and one balance in the SFP it is not widespread through the entire financial statements).
  • The audit opinion should be modified in this situation with a qualified opinion ('except for').

Question 5

If the disclosure is adequate then issue an unmodified opinion and will include an emphasis of matter paragraph. If the disclosure is not adequate and this is considered material but not pervasive then issue a modified ‘except for’ opinion. If the disclosure is not adequate and this is considered material and pervasive then issue an adverse opinion.

Question 6

The audit will issue an unmodified opinion.

Since Going Concern is considered fundamental to the understanding of the users of the financial statements; the auditor will include an emphasis of matter paragraph.

Question 7

This is a disagreement.

It is considered material by nature and is pervasive to the users understanding of the financial statements. The auditor will issue an adverse opinion.

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Tutorial solutions - Audit reporting

Course: Concepts In Biochemistry And Microbiology (SHGB6115 )

16 Documents
Students shared 16 documents in this course

University: Universiti Malaya

Was this document helpful?
Tutorial solutions – audit reporting
Question 1
Title
Addressee
Introductory paragraph
Responsibilities
Scope
Opinion
Date
Address
Signature
Question 2
An unmodified report follows a standard template prescribed in ISA 700, whereas a modified report
has been amended from this template either by giving:
- A modified report with an unmodified opinion where the report still states that the FSs give a true
and fair view, but an additional paragraph (either an EOM or Other Matters paragraph) has been
added.
- A modified report with a modified opinion (where the report gives either an ‘except for’ opinion,
adverse opinion or disclaimer of opinion).
Question 3
Modified “except for” opinion
- Given for either disagreements or limitations of scope with are material but not pervasive.
- “In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion
paragraph, the financial statements give a true and fair view...”
Adverse opinion
- Given for disagreements which are material and pervasive.
“In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion
paragraph, the financial statements do not give a true and fair view...”
Disclaimer of opinion
- Given for limitations on scope which are material and pervasive.
“Because of the significance of the possible impact of the uncertainties, described in the Basis for
Disclaimer of Opinion paragraph, we do not express an opinion on the financial statements...”

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