Question 4 10 Marks (a) For each of the following situations, state the type of audit opinion that should be given in the circumstances. (8 marks) Type of Opinion i. ii. Situations The financial report of Ajax Ltd is prepared on the basis that the company is a going concern but does acknowledge in the annual report that the company is having some financial issues. After considering additional audit evidence the auditor's conclude that Ajax Ltd will not be able to continue as a going concern in the next financial year. Your client's solicitors representation letter reveals that the company is being sued by a major customer for a material amount for an event that occurred in a prior period. The client refuses to acknowledge this legal action in the financial statements as they are confident they can defeat the action. The directors of a company listed on the Australian Stock Exchange refuse to disclose in the annual report that its three directors' each receive an annual remuneration of $150,000 on the grounds that it is not material. Net profit after tax is $30 million and net assets are $60 million. A significant amount of the client's accounting records were destroyed by fire in the current financial year. The financial report of Simspon Ltd is prepared on the basis that the company is a going concern but does acknowledge in the annual report that the company is having some financial issues. After considering additional audit evidence the auditor's conclude that Simpson Ltd will be able to continue as a going concern in the next financial year. iii. iv. V Question 4 continued vi. vii. Before you sign the audit opinion you receive a draft of the client's annual report that contains additional information that is inconsistent with the figures contained in the financial statements. You are currently engaged to audit Maloney Ltd. Your audit team has found an error in inventory to the value of $95,000. Overall planning materiality is $70,000. The client has not allowed the auditor to verify their material accounts receivable balance using positive confirmation requests. The auditor has been able to use alternative procedures to verify the accounts receivable balance. viii. (b) Explain the difference between an unmodified audit opinion and an adverse audit opinion. (2 Marks)