Question 1

1. Discuss the main components of the audit expectation gap in the capital markets.

(10 marks)

2. During the audit of LDF Cos bad debt provision, the auditor discovered that 500,000 of costs included in the provision did not meet the criteria for inclusion based on the applicable accounting standards. The management of LDF suggested that no adjustment is required as the provision is a matter of judgement and the current provision is deemed reasonable by the management.

Requirement:

1. Discuss the differences between the modified and unmodified audit reports. (10 marks)

2. Discuss the above issue and describe the impact of this issue on the auditors report, if any, should this issue remain unresolved. (10 marks)