CASE STUDY 1 - AUDIT OPINIONS AND ENGAGEMENTS

Use the following CASE STUDY facts to answer Questions 1 to 8 on this page:

You have completed your financial report audit of Mellow Ltd, a public company, for the year ended 30 June 2020. The following material events occurred:

1. Due to COVID-19 travel restrictions, you were unable to physically verify the property, plant, and equipment held by an overseas subsidiary that was acquired by Mellow Pty Ltd during the year. Alternative procedures are not satisfactory.

2. A large credit sale was recorded on 28 June 2020, but an examination of the shipping documents revealed that the goods were shipped from the warehouse on July 3rd. Management is unwilling to alter the date as it would then conflict with the internal management sales reports.

Question 1

What is the appropriate audit opinion to be issued for Mellow Ltd?

Select one:

a. Disclaimer of Opinion

b. Qualified Opinion

c. Adverse Opinion

d. Unqualified opinion

Question 2

State your reasons for issuing the audit opinion you chose in Q1 above (refer to BOTH events in your answer). (3 marks)

Question 3

For event 1 (the overseas subsidiary), which assertion is most at risk for the Property, Plant and Equipment account?

Select one:

a. classification

b. existence

c. accuracy, valuation, and allocation

d. completeness

e. presentation

Question 4

For event 2 (the large sale), which assertion is impacted for the Accounts Receivable account?

Select one:

a. completeness

b. cut-off

c. accuracy, valuation, and allocation

d. existence

e. rights & obligations

Question 5

If the auditor found a material error in the Chairperson's report for Mellow Ltd, how would this impact the audit report (if it was not amended)?

Select one:

a. The Other Matter paragraph would be added

b. No modification is required as the Chairperson's Report is not the subject matter of the audit

c. A Material Uncertainties in Relation to Going Concern paragraph would be added

d. An Emphasis of Matter paragraph would be added

Question 6

What level of assurance is provided in your engagement with Mellow Ltd?

Select one:

a. absolute assurance

b. no assurance

c. reasonable assurance

d. limited assurance

Question 7

Who is the intended user of the audit report for Mellow Ltd?

Select one:

a. the directors

b. the shareholders

c. potential investors

d. creditors (e.g. bank)

Question 8

The audit of Mellow Ltd would best be characterized as:

Select one:

a. a voluntary appointment

b. a statutory appointment under the Corporations Act

c. a non-statutory appointment under the Corporations Act

d. a non-statutory appointment in which the Auditing Standards apply