Auditors perform audit attestation to enhance the credibility of the financial report. However, it is quite impossible for the auditors to provide an absolute assurance regarding the subject matter on which they express their opinion. Required: a. Why is it impossible for an auditor to provide absolute assurance regarding subject matter on which they express their opinion? (4 marks) b. Explain what type of assurance an auditor should provide in a financial report audit. (1 mark) Question 2: (5 marks) You are an audit senior in an accounting firm and you asked the audit partner about the 'audit expectation gap'. The audit partner provided his opinion on the issue as follows: There is a so called 'audit expectation gap', and it is associated with unreasonable expectations of users. They want all fraud found, and a guarantee that the company will continue forever! This is quite unreasonable and not what the audit is designed to do! Perhaps we could do more on these issues, but it would be more work, cost more, and I doubt whether the companies would be prepared to pay anyway. Required: Discuss the views of the audit partner. Question 3: (5 marks) Independence has always been a fundamental aspect of the accountancy profession. A commentary in 2003 suggested the following: ... the public interest will be best served by reprioritising professional and ethical objectives to establish reliability in fact and appearance as the cornerstone of the profession, rather than relationship-based independence in fact and appearance. Required: Based on the series of accounting crises and corporate collapses in the early 2000s, discuss the importance of maintaining independence (and reliability) by an auditor. What do you think of the above comment? Question 4: (5 marks) Polo Babywear Ltd was formed on 30 August 2013 and its first financial year ended on 30 June 2015. The audit firm of Ross, Young & Partners has tendered for and won the audit for the first financial year. After signing the audit engagement letter, Mr. Ross is approached and asked to act as the company secretary for a period of 6 months because the company has had difficulty in obtaining staff. The role would be mainly to sign documents and to satisfy ASIC that the company had a complete set of officers. Mr. Ross would have no financial interest in the company through share ownership or otherwise, would receive no salary, would not keep the books, and would not give any advice that is different from what he would normally give in his duties as a public accountant. Mr. Ross decides to accept the offer, conditional on the appointment being definitely completed before the rendering of the audit opinion on the financial statements. Required: Discuss Mr. Ross's acceptance of the dual roles of company secretary and auditor Question 5: (5 marks) How did the key principles of 'due care' develop through the Kingston Cotton Mill Co. case, the London and General Bank case and the Pacific Acceptance case? Question 6: (5 marks) What is the difference between (a) an unmodified auditor's report and (b) a modified auditor's report? Question 7: (5 marks) What is the purpose of touring operating facilities and offices? Question 8: (10 marks) In planning the audit of a client's liabilities, an auditor derived the following specific objectives from management's financial statement assertions: 1. Liabilities are not valued below the amount expected to be paid in accordance with an applicable accounting standard. 2. The total of the schedule of purchase ledger balances agrees to the balance on the purchase ledger control account. 3. All liabilities represent obligating events occurring before the year end. 4. Current liabilities include all amounts owed by the company that fall due within 12 months of the year end. 5. All liabilities that were settled before the year end have been excluded from the balance sheet. 6. Liabilities have been properly classified in the balance sheet. 7. All finance lease obligations have been included in liabilities. 8. Details of any mortgages in relation to bank loans have been disclosed in the notes of the financial report. 9. Provisions for staff annual leave have been correctly calculated. 10. Long-term liabilities have been discounted to present value where the discounting amount is material. Required: For each specific audit objective (items 1-10), identify the management assertion from which it was derived. (1 mark each) Question 9: (10 marks) You are a senior auditor working on the audit of HealthyGlow for the year ended 30 June 2015. You are in the planning stage of the audit. It is April 2015 and you discover that HealthyGlow has recently acquired two new, full-body scanning machines, representing the very latest in technology, at a cost of more than $10 million each. The machine enables a full 360-degree scan of the body with the ability to identify tumours, cysts and other abnormal internal growths which currently have a 50% probability of being detected with other scanning devices on the market. Recent studies have shown there may be potential long-term side effects to patients who are scanned by the new technologically advanced machine. However, given the machine has only just arrived on the market, the results will not be known for many more years. This uncertainty and the potential high risk associated with the machine have caused bad press for both the scanning machine and HealthyGlow. HealthyGlow charges patients a premium price for the scanning machine due to its advanced technological abilities. As a result of high demand, the hospital has decided to reserve the use of the machine for pre-paid patients only. All scans must be paid for in full by patients at the time of booking. Payments are immediately recognised as revenue by the hospital. Demand for the scanners has been extremely high and HealthyGlow now has bookings for four months in advance. You note that even though it is only April 2015, the hospital has bookings for July and August 2015. The Medical Association of NSW is currently reviewing the use of the scanning machines and may ban their use within Australia until the issue is resolved. The decision is expected to be communicated on 1 August 2015. Management have indicated there is an 80% chance the scanners will be given the go ahead. Required: a) Assess the main business risks for HealthyGlow. (4 marks) b) Identify two key account balances likely to be affected by the above information. (2 marks) c) For each account balance identified in b), identify and explain the key assertion most at risk. (4 marks) Question 10: (5 marks) Refer to the news article from the following link: https://www.bbc.com/news/articles/c8znzxe5ewxo Critically evaluate the role of Auditors in light of their professional duty and relevant code of ethics for auditors. What is your view on the article?