Question
For the following scenarios explain potential impact on audit opinion. Clearly mention the impact on the audit report (e.g. unmodified, modified with qualified opinion, emphasis
For the following scenarios explain potential impact on audit opinion.
Clearly mention the impact on the audit report (e.g. unmodified, modified with qualified opinion, emphasis of matter paragraph, material uncertainty regarding going concern assumption, disclaimer, adverse opinion, etc).
Reasoning for the potential modification must be specific, with references to scope limitation, materiality and pervasiveness of the issues where applicable.
Each scenario is to be considered separately
1.During your stock check and cut off procedures you come to note that your client has booked sales of Rs 25 million for stock that is still in the warehouse at 12:00 midnight at year end. The stock cost value is Rs 18 million. The management states that these are confirmed orders and delays are only due to the time the trucks are taking to load the material. Management is not willing to reverse the transaction.
Total Sales of Company: Rs 320 million
Total Assets of Company: Rs 130 million
Profit / (Loss) for the year: Rs 45million
In addition to explaining the impact on the audit report, propose the rectifying entries that should be passed in the accounts.
2.Due to certain political instability in the country, roads are blocked and you are unable to attend physical stock count of one of your client's factories. The client has four factories. Total closing stock is Rs 15 million, whereas the stock at the factory you could not visit is Rs 5 million.
Total Sales of Company: Rs 135 million
Total Assets of Company: Rs 65 million
Profit / (Loss) for the year: Rs 12 million
In addition to explaining the impact on the audit report, explain what you should the auditor do under the circumstances.
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