For the following independent situations, assume that you are the audit partner on the engagement: 

i). Masturah Berhad owned a fleet of delivery van. During the current year, they sold all trucks and leased them back under the sale and leaseback arrangement. Accordingly, the method of accounting for the trucks was changed to lease capitalization. Detailed particulars regarding the change were fully disclosed in the notes to the accounts. 

ii). Cemerlang Berhad which has a negative working capital position is facing a lawsuit from its banker for failure to repay loan instalments on the due date. You have significant doubt on the company’s ability to survive financially, but no material misstatements are noted during the current year audit. 

iii). In the audit of Bahagia Berhad, you concluded that there is a possibility that inventory is overstated. The client refused to allow you to expand the scope of your audit test to confirm whether the balance is actually misstated or not. The company’s inventory forms a major portion of the company’s current assets. Required: For each situation above;

Identify the condition requiring a deviation from standard unqualified audit report, if any.  

Identify the likely of materiality level (immaterial, material, highly material or not applicable). 

Identify among the following, the most appropriate audit report to be issued:

 i). Standard unqualified opinion

 ii). Unqualified opinion with explanatory or modified paragraph 

iii). Qualified opinion iv. Disclaimer opinion v. Adverse opinion [4.5 marks] 

iv). Briefly explain the rationale of your answer in each of the situations above.

For each specific audit objectives given below, suggest appropriate managementassertions and general audit objectives.

i). Recorded cash disbursement transactions are for the amount of goods or servicesreceived and correctly recorded.
ii). Cash disbursement transactions are properly included in the accounts payablemaster file and are correctly summarized.
iii). Recorded cash disbursement are for goods and services actually received.
iv). Inventory items are properly classified as raw materials, work in process andfinished good.
v). Existing cash disbursement transactions are recorded.
vi). Cash disbursement transactions are recorded on the correct dates.
vii). Prices used to value inventories are materially correct.