750 Words

1. You are the audit partner in charge of five audits which have recently been completed. All that remains to be done is for the category of the audit report to be decided upon in each case. Client A is controlled by its majority shareholder, Mr Fudd, who is also the chief executive officer. The audit work revealed significant transactions between Client A and another company controlled by Mr Fudd. Mr Fudd has been told that accounting standards require disclosure of these transactions but he refuses to make such disclosures in the notes to Client A's financial statements. Client B is a holding company based in the UK. It has an overseas subsidiary located in Freedonya, a country which has recently undergone a military coup and has closed its borders to visitors. There was no way for the audit team to access the management, the premises or the accounting records of this subsidiary. Transactions through the Freedonyan subsidiary accounted for 80% of the group's revenues and 90% of its profits. Client C appointed your firm after its year-end, consequently the audit team were not able to attend the inventory count. The nature of the inventory and the extent of the records are such that it is not possible to work backwards to what the inventory might have been at the year-end. Client D is involved in long-term construction projects. Its accounting records show that some of these projects are very likely to produce a loss on completion. The directors refuse to write down the carrying value of the projects because there are other projects which are very likely to produce a profit on completion which will cancel out the expected losses on the other projects. Client E was unable to locate a purchase invoice selected in the audit sample. Extended tests were done and it was concluded that it was unlikely that there were other missing invoices. The missing invoice accounted for 0.0001% of the total purchases in the year. No other problems were encountered. Required a) State, with reasons, which category of audit opinion is most appropriate for each client. (15 marks) b) Explain what other opinions auditors are required to form following their audit of a company's financial statements. (10 marks)