12.25

MEDIUM You have completed the audit of Cruiser Ltd for the year ended 30 June 2018. You experienced a number of difficulties during the audit, including significant disagreements over the valuation of Cruisers investment property holdings. The audit partner had suggested that the property value was overstated by $8 million, a figure which was twice the level of materiality of $4 million set for the audit. As a result of discussions with the audit committee, the CEO of Cruiser agreed to revise the valuations downward by $5 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement in the financial report of $3 million. The audit partner is now considering the effect of this misstatement on the auditors report.

REQUIRED Explain the effect of the misstatement on the auditors report for Cruiser for the year ended 30 June 2018.