Lucky Pet Limited (LP) operates chain-stores selling pet food and pet supplies. Since it has started an e-commerce platform this year, the orders have increased substantially and LP has rented a third-party warehouse to store some of its inventories.

As at 31 December 2020, around $1 million inventories were stored in this third-party warehouse. However, due to the change of LPs senior management towards the financial year end, no one informed the auditor of this additional storage facility. As a result, no audit procedures have been conducted to verify the inventory amount and existence at this third-party warehouse.

According to the new management, the closing inventory as at 31 December 2020 is $5 million. The abovementioned $1 million inventories are included in the total $5 million. The materiality level is set at $800,000.

Required:

(a) Determine and explain the appropriate audit opinion to be issued. (6 marks)

(b) The new management does not accept the responsibility of failing to inform the auditor of this additional storage facility. They believe it is entirely the former managements problem. As a result, they refuse to provide a written representation letter to the auditor. How will it affect the audit opinion to be expressed? (4 marks)

(c) After you have issued the auditors report but before providing the auditors report to LP, a fire occurred at this third-party warehouse and there was heavy damage to LPs inventories. The newspaper described the event in detail. The loss will be fully reimbursed by the insurance. What is the auditors responsibility in relation to this matter? (5 marks)

(Total for Question: 15 marks)