You are the audit manager in JonArc & Co. One of your new clients this year is Galartha Co., a company having net assets of £15m. The audit work has been completed, but there is one outstanding matter you are currently investigating: the directors have decided not to provide depreciation on freehold buildings in the financial statements on the grounds that they are appreciating in value. IFRS Standards require that depreciation be provided. You have been unable to resolve the matter regarding depreciation of buildings with the directors. The directors insist on not providing depreciation. You have therefore drafted the following wording for your proposed audit report:

1 As discussed in Note 15 to the financial statements, no depreciation has been provided in the financial statements which, in our opinion, is not in accordance with IFRS Standards.
2 The charge for the year ended 30 September 2021 should be £420,000 based on the straight-line method of depreciation using an annual rate of 5 per cent for the buildings.
3 Accordingly, the non-current assets should be reduced by accumulated depreciation of £1,200,000 and the profit for the year and accumulated reserves should be decreased by £420,000 and £1,200,000, respectively.
4 In our opinion, except for the effect on the financial statements of the matter referred to in the preceding paragraph, the financial statements give a true and fair view... (remaining words are the same as for an unmodified opinion paragraph).

Required:
(a) Explain the meaning and purpose of each of the above paragraphs in your draft audit report.
(b) State the effect on your audit report of the following two situations:
(i) Depreciation had not been provided on any non-current asset for a number of years, the effect of which if corrected would be to turn an accumulated profit into a significant accumulated loss.
(ii) JonArc & Co. was appointed auditors after the end of the financial year of Galartha Co. Consequently, the auditors could not attend the year-end inventory count. Inventory is material to the financial statements.