QUESTION 3 (a) Audit report is essential in auditing because they communicate auditors' findings. (1) Predict two (2) major problems that stakeholders will be facing if the audit report is not prepared by independent entity. (4 marks) (ii) One of the audit reports that auditors issue is Unqualified Report with Explanatory Paragraph". One condition when this report is issued is when the auditors have a substantial doubt about going concern of their audit client. Present why having a doubt on the ability of the client to continue their business operation in the next financial cycle does not require auditors to issue "Qualified Audit Report". (6 marks) (b) For each of the following independent situations, express the type of audit report that you would issue considering the conditions and materiality (if any) for each case: 0 Your team is responsible to audit Cempaka Sdn Bhd (CC) for the year ended 30 June 2021. During your audit investigation, your team managed to verify all flower inventories of CC. Due to the recent Covid-19 pandemic, your team was not able to perform audit for the wrapping paper inventory. Based on your evaluation, this item is considered as not material. () Maju Bhd (MM) has been struggling with its cash flow for the past six months Based on your team's investigation, all financial documentation and internal controls are well in place (ii) During your audit investigation in Shikamaru Bhd (SS), one of your team members discovered the way the accounting staff record and treat SS equipment lease is not according to the Malaysian Accounting Standards. When this is brought to the management, they insisted to retain their current recording in their books and financial statement. Even though the overall financial statements are still deemed as true and fair, the lease amount is still material. (iv) Neji Bhd (NN) specialises in manufacturing organic fertilizers Since the Covid- 19 pandemic hits globally, there was very tight restriction on travelling Therefore, your team was not able to verify the inventories values, which are found to be highly material and would affect the overall financial statements. Continued... HIMHAAK 335 AC364 AUDITING 19 NOVEMBER 2001 (v) Teraju Bhd (TT) has been struggling with cash flows for the past two years. Nevertheless, the company still manages to stay afloat since they have very strong and loyal customers. Based on your team's investigation, everything seems to be fairly disclosed financial statements are in order. Towards the end of your investigation, you found out that one of their major customers warehouse caught fire and everything was damaged. (15 marks) (Total: 25 marks)