Question 1

Your firm, WWW LLP, is the auditor of Walnut Ltd. The auditor's report below was drafted by Beanie

Junior, a staff accountant at the firm. Walnut Ltd. is a publicly-held company (incorporated under the

Canada Business Corporations Act and traded on the Toronto Stock Exchange) with a year end of

December 31, 2019. The report was submitted to the engagement partner who reviewed the audit

working papers and properly concluded that an unmodified opinion should be issued. In drafting the

report, Beanie considered the following:

The 2019 statements are affected by an uncertainty concerning a lawsuit, the outcome of which is

material and properly disclosed and recorded in the financial statements.The company also has a

significant number of derivatives which required extensive audit work to conclude there were no

significant misstatements in these accounts.

Walnut Ltd. has two subsidiaries that are consolidated into the Canadian parent company's financial

statements.

The audit work was fully completed and the audit report was accepted by Management and the Audit

Committee of Walnut Ltd. on May 5, 2020.

____________________________________________________________________________________

The Independent Auditors' Report on a Complete Set of General Purpose Financial Statements

To the Board of Directors of Walnut Ltd.

Report on the Financial Statements

We have audited the accompanying financial statements of ABC Company, which comprise the statement

of financial position as at December 31, 2020, and the statement of comprehensive income, statement of

changes in equity, and statement of cash flows for the year then ended, and notes to the financial

statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial

position of the Company as at December 31, 2019, and of its financial performance and its cash flows for

the year then ended in accordance with the applicable financial reporting framework).

Responsibilities of Management and Those Charged with Governance for the Financial

Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with IFRS, and for such internal control as management determines is necessary to enable

the preparation of financial statements that are free from material misstatement.

In preparing the financial statements, management is responsible for assessing the Company's ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the

going-concern basis of accounting unless management intends to liquidate the Company or to cease

operations, or has no realistic alternative but to do so.

Management is responsible for overseeing the Company's financial reporting process.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit

of the Financial Statements section of our report. We are independent of the Company in accordance with

the Provincial Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants

together with the ethical requirements that are relevant to our audit of the financial statements in

Hamilton, and we have fulfilled our ethical responsibilities in accordance with these requirements and the

Code. We believe that the audit evidence we have obtained is appropriate to provide a basis for our

opinion.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain limited assurance about whether the financial statements as a whole are free

from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes

our opinion. Limited assurance is a high level of assurance, but is not a guarantee that an audit

conducted in accordance with CASs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the

basis of these financial statements.

Required

Identify the deficiencies in the order in which they appear in the auditor's report drafted by Beanie. Do not

redraft the report.

Source CAS 700, 701, 706 and 710.