Question 1 [10 Marks] - Part A- (6 Marks) For each of the following independent and material circumstances, identify the type of audit opinion required and explain the basis of your answer. Situation 1 Your client, Home and Away Ltd, had a challenging year and did not keep appropriate books and records. This was due to the accounting department being understaffed, transactions were not entered promptly, and reconciliations were not performed. To sort out the mess, a temporary accountant was employed; however, he was unable to even reconcile the bank account at year end. Therefore, the audit was extremely difficult this year, and you are not satisfied all transactions that occurred during the year are reflected in the financial report. Situation 2 While auditing your client Basma \& Basma Ltd for the year ended 30th June 2021. You have identified material misstatements of the property, plant, and equipment account due to the incorrect depreciation rate used for the past five years. However, recent technological changes in the industry have convinced you that the useful lives of Basma and Basma's property plant and equipment account need to be adjusted. resulting in an increased depreciation charge. The Directors of Basma and Basma refuse to make any change to the depreciation rates, despite you explaining that this will put them in breach of the requirements regarding impairment tests Situation 3 Your client Suits Ltd is a event management company. Suits Ltd arranges for popular overseas entertainment artist to perform in Australia. Bruno Mars concert was booked to be played in major cities in Australia. Suit's written contract required the company to pay the artist in US dollars, but in order to reduce costs, it did not hedge the amounts. Subsequent to year end, the Australian dollar fell against the US dollar and a substantial loss relating to the Bruno Mars concert was predicted. The management of Suits Ltd tried unsuccessfully to renegotiate the Bruno Mars contract and has been unable to obtain finance to cover the expected shortfall. Suits has now cancelled the concert and expects a substantial claim from Bruno Mars. It is clear to you, as the auditor, that Suits does not have the income, cash, or the other assets to sustain such a loss. Question 1 [10 Marks] - Part A- (6 Marks) For each of the following independent and material circumstances, identify the type of audit opinion required and explain the basis of your answer. Situation 1 Your client, Home and Away Ltd, had a challenging year and did not keep appropriate books and records. This was due to the accounting department being understaffed, transactions were not entered promptly, and reconciliations were not performed. To sort out the mess, a temporary accountant was employed; however, he was unable to even reconcile the bank account at year end. Therefore, the audit was extremely difficult this year, and you are not satisfied all transactions that occurred during the year are reflected in the financial report. Situation 2 While auditing your client Basma \& Basma Ltd for the year ended 30th June 2021. You have identified material misstatements of the property, plant, and equipment account due to the incorrect depreciation rate used for the past five years. However, recent technological changes in the industry have convinced you that the useful lives of Basma and Basma's property plant and equipment account need to be adjusted. resulting in an increased depreciation charge. The Directors of Basma and Basma refuse to make any change to the depreciation rates, despite you explaining that this will put them in breach of the requirements regarding impairment tests Situation 3 Your client Suits Ltd is a event management company. Suits Ltd arranges for popular overseas entertainment artist to perform in Australia. Bruno Mars concert was booked to be played in major cities in Australia. Suit's written contract required the company to pay the artist in US dollars, but in order to reduce costs, it did not hedge the amounts. Subsequent to year end, the Australian dollar fell against the US dollar and a substantial loss relating to the Bruno Mars concert was predicted. The management of Suits Ltd tried unsuccessfully to renegotiate the Bruno Mars contract and has been unable to obtain finance to cover the expected shortfall. Suits has now cancelled the concert and expects a substantial claim from Bruno Mars. It is clear to you, as the auditor, that Suits does not have the income, cash, or the other assets to sustain such a loss
