Carrots Ltd. has a stock obsolescence provision representing 5% of the closing stock figure. This is consistent with the previous year. Your audit senior informs you that based upon test results, the provision is understated by 50%. Whereas the effect of increasing the provision would not be significant on net profit, he is concerned about the effect on the overall stock figure. The client is not anxious to increase the provision as they fear their competitors may react with a price war if they see an increase in the provision for obsolete stock. Recommended audit opinion and explanation