QUESTION #3 (10 MARKS) For the following scenarios explain potential impact on audit opinion Clearly mention the impact on the audit reporte.g. unmodified. modified with qualified opinion, emphasis of matter paragraph. material uncertainty regarding going concern assumption disclaimer, adverse opinion, etc). Reasoning for the potential modification must be specific, with references to scope limitation, materiality and pervasiveness of the issues where applicable Complete audit report/paragraphs for qualification/ modification are NOT required Each scenario is to be considered separately. Attempt any TWO from the following scenarios 1. During your stock check and cut off procedures you come to note that your client has booked sales of Rs 25 million for stock that is still in the warehouse at 12.00 midnight at year end. The stock cost value is Rs 18 million. The management states that these are confirmed orders and delays are only due to the time the tracks are taking to load the material. Management is not willing to reverse the transaction Total Sales of Company: Rs 320 million Total Assets of Company: Rs 130 million Profit/(Loss) for the year: Rs 45million In addition to explaining the impact on the audit report propose the rectifying entries that should be passed in the accounts 2. Due to certain political instability in the country, roads are blocked and you are unable to attend physical stock count of one of your client's factories. The client has four factories. Total closing stock is Rs 15 million, whereas the stock at the factory you could not visit is Rs 5 million Total Sales of Company: Rs 135 million Total Assets of Company Rs 65 million Profit/(Loss) for the year Rs 12 million In addition to explaining the impact on the audit report explain what you should do as the auditor under the circumstances. 3. The company has not been performing well for years. making either becak-even or loss after tax. In the current year they have procured a loan for now equipment that could radically change their product and should improve their profitability drastically. Management feels that there is no question that the Company will continue in the future and profits and cash flow will improve. They have shared their projections based on this scenario which are showing considerable profits and cash. Total Sales of Company: Rs 170 million Total Assets of Company: Rs 95 million Loss) for the year (2019): Rs 20 million The company had a loss of Rs 15 million in 2018, loss of 18 million in 2017 and profit of 3 million in 2016. The Company has reached its maximum limit for Overdraft and the new loan is being brought in by immediately pledging the new equipment yet to be bought. Management will only accept a clean audit report with no additional paragraples. In addition to explaining the impact on the audit report explain what you should do as the auditor under the circumstances