Mr Kasmon is auditing the financial statements of Suram Saje Sdn Bhd (SSSB) for the year ended 31 December 2020. SSSB operates to produce instant noodles, especially for the local market. SSSB is a subsidiary of Kumpulan Meggi Berhad. Mr Kasmon plans to complete the audit work and sign the audit report on 25 March 2021. Mr Kasmon examines the minutes of management and board meetings and finds that two events or transactions he considers could affect the audited financial statements. The event or transaction is as follows:

First, the minutes of the meeting emphasized that the cost of imports from abroad has increased too high due to the depreciation of the Malaysian Ringgit (RM). It caused SSSB to suffer losses with a larger amount of RM7.7 million. For the previous two years, SSSB also reported consecutive losses. As at 31 December 2020, the total current liabilities of SSSB companies exceeded the current asset value of RM3.9 million and the shareholders suffered a deficit of RM2.2 million. The company also failed to pay off all short-term liabilities and is currently in talks with the bank to restructure all short-term loans to long-term loans in order to reduce cash flow.

Second, the minutes of the meeting with the company show that on 26 December 2020 the management has decided to issue new shares amounting to 1,000,000 units at an issue value of RM2.75 per unit to existing shareholders. A review of the document indicates that the shares were issued and paid in full on 12 January 2021. The company recorded the issue on 26 December 2020. Management stressed to Mr Kasmon that the decision to issue the share was decided on 26 December 2020 and must recorded in the same financial year. Mr. Kasmon was only able to scratch his head when he received an explanation from the SSB management.

Be required:

a) Referring to the above case,

(i) Discuss the issues for both events or transactions above. 

(ii) Explain the appropriate action taken by Mr. Kasmon to confirm both of the above issues. 

(iii) Discuss the EFFECT of the two issues on the type of audit opinion that Mr. Kasmon will issue on the financial statements of SSSB companies. 

b) Discuss the basic factors that the auditors consider to determine the type of audit opinion whether the audit opinion is conditional, contradictory or denial.