Question 1

(a) Trusted Co has achieved RM3 million annual sales after five years of incorporation. The company, at present has no long-term debt. The management of Trusted Co have discussed the necessity of having their financial statements audited. They have decided it is probably a good idea to be assured that their accountant has made no errors in maintaining the records. Also, it will be good to have the assurance the staff makes no errors or tries to steal anything. The founder of Trusted Co commented The auditor prepared the audited financial statements and once they gave an unqualified opinion, that would mean that our investors would be confident that their investment must be safe.

Required:

Discuss any THREE (3) misconceptions that Trusted Co seems to have about the auditors role with respect to the audit of financial statements. (9 marks)

(b) During the final audit, the finance director has informed the audit team that Winztag Cos bankers will not make a decision on the renewal of the overdraft facility until after the auditors report is signed. The audit engagement partner is satisfied that the use of the going concern basis is appropriate. The directors have agreed to include some brief going concern disclosures in the draft financial statements and the audit team still have to assess the adequacy of these disclosures.

Required:

Discuss the issue and describe the impact on the auditors report of Winztag Co of adequate and inadequate going concern disclosure. (8 marks)

(c) The auditors report is the key deliverable addressing the output of the audit process. Investors and other users of financial statements have called for the auditors report to be more informative in particular, for auditors to provide more relevant information to users based on the audit that was performed. The IAASB agrees that enhanced auditor reporting is critical to influencing the value of the financial statement audit, and to the continued relevance of the auditing profession. Therefore, the overall objective of the IAASBs auditor reporting project has been to enhance the communicative value of the auditors report, in the public interest.

Required:

Critically analyze and discuss on the matters regarding Key Audit Matters (KAM) in the new auditor report. (8 marks)