Case 2: You have been hired as audit supervisor of KMR co. During the meeting you have been informed about the issues found in the organization after the process of audit risk assessment. You have been assigned for the audit of work in progress. You are also going to be a part of the team which will attend the year-end inventory count along with the final audit. The work in progress contains the cars which are partly assembled and the value of this is anticipated to be material. The company values work in progress in accordance with the percentage of completion. The standard costs are then considered and applied to the percentages calculated. The company hires an independent valuer for the valuation of work in progress. The partly assembled cars are then shipped to its subsidiary unit in America for completion and sales. The said inventory is in transit for 2 weeks.

Keeping in view case 2; During the audit, your team has identified an error in the valuation of work in progress, as a number of the assumptions contain out of date information. The directors of the company have indicated that they do not wish to amend the financial statements.

Required: Explain the steps auditor should now take and the impact on the audit report in relation to the directors refusal to amend the financial statements (Marks 5+5)