Morning Delight Company manufactures cereals and operates five factories, six warehouses and five distribution depots in major cities in Ghana. The audit for the year ended 31 December 2019 is almost complete and the financial statements and auditors report are due to be signed shortly. Profit before taxation is Ghc 11.6 million. The following events have occurred subsequent to the year-end and no amendments or disclosure have been made in the financial statements. Event 1 Fire Outbreak On 2 February 2020, a fire occurred at the largest of the distribution depots. The fire resulted in extensive damage to 41% of the companys vehicles used for dispatching goods to costumers, however, there was no significant delays to customers deliveries. The company estimated the level of damage to the vehicles to be in excess of Ghc108,000. Only a minimal level of inventory, approximately Ghc 42,000, was damaged. Secure Insurance company, the insurers of Morning Delight Company has started to investigate the fire to assess the likelihood and the level of payment, however, there are concerns that the fire was started deliberately, and if it is true, it will invalidate any insurance cover. On 22 February 2020, it was discovered that a large batch of Morning Delight Companys new cereal brand Anopayede held in inventory at the year-end was defective, as the cereal contained too much sugars. To date no sales of this new cereal have been made. The cost of the defective batch of inventory is Ghc 1,500,000 and the defects cannot be corrected. However, the scrapped cereal can be utilized as a raw material as an alternative cereal brand at a value Ghc 84,000. 4 marks Based on the two subsequent events above you are required to: i. Explain whether the financial statements require amendment, and ii. Describe audit procedures which should now be performed in order to form a conclusion on any required amendments. b) You are the manager in charge of the audit of Nananom Company, a public limited liability company which manufactures specialist equipment and costumes for use in Kumahwood and Nafftti films in Ghana. Audited revenue is Ghc 100 million with profit before tax of Ghc 6.25 million. Audit work up to but not including, the obtaining of written representations has been completed. A review of the audit file has disclosed the following outstanding point: Kumahwood Nananom Company is facing a potential legal claim from the Kumahwood company in respect of a defective equipment that was supplied for one of their films. Kumahwood sustains that the equipment built was not robust enough, while the directors of Nananom argue that the specification was not sufficiently detailed. Nananom were of the view that using such sophisticated equipment under conditions that require heavy falls, may render them not in the best of working conditions after a couple of films produced. However, this is what Kumahwood expected. Solicitors are unable to determine liability at the present time. Kumahwood has therefore slapped a claim for Ghc 3.33 million being the cost of a replacement equipment and lost production time on Nananom. The directors opinion is that the claim is not justified. Depreciation Depreciation of specialist production equipment has been included in the financial statements at the amount of 12% per annum using the reducing balance method. The treatment is consistent with prior accounting periods (which received an unmodified auditors report) and other companies in the same industry. Sales of old equipment show negligible profit or loss on sale. The audit senior, who is new to the audit, feels that depreciation is being undercharged in the financial statements. 4 marks You are required to: i. Discuss whether or not a paragraph is required in the written representation for each of the above matters. c) A suggested format for the written representation has been sent by the auditors to the directors of Nananom. The directors have stated that they will not sign the written representation this year on the grounds that they believe the additional evidence that it provides is not required by the auditor. You are required to: i. Discuss the action the auditor may take as a result of the decision made by the directors, not to sign the written representation. 4 marks