Question 4 Described below are three situations that have arisen at unrelated external audit clients of your public accounting firm. The year end in each case is 31 October 2020. Minx Bhd (Minx) Your audit staff informed you that the accounting records of Minx Bhd, related to cash sales amounting to RM 70,000 could not be located for the purpose of audit. According to Minx's financial controller, the records were destroyed during the recent flood. The total revenue registered for this financial year is RM 1,000,000. Collute Bhd (Collute) The statements of financial position of Collute shows inventory at cost of RM 2.6 million. The inventory was bought on 1 October 2020 to fulfil an order for a customer in Singapore. However on 4 November 2020, the customer went into insolvency and was not able to complete the transaction with Collute. On 29 November 2020 Collute sold the inventory for RM 2 million. The draft financial statements show that Collute's profit before tax is RM25.8 million and total assets are RM 78.2 million. Benux Bhd (Benux) The financial statements of Benux indicate the purchase of a motor vehicle from Saxon Sdn Bhd (Saxon), for RM38, 000, which has been included in non-current assets. When reviewing Benux's board minutes you discovered that Saxon is owned and managed by the husband of Benux's managing director. The directors of Benux refuse to disclose the transaction in the notes to the financial statements as they claim that the amount is not significant. The draft financial statements of Benux show total assets of RM 15 million. Required: For each of the situations outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each audit report. (9 marks) Question 4 Described below are three situations that have arisen at unrelated external audit clients of your public accounting firm. The year end in each case is 31 October 2020. Minx Bhd (Minx) Your audit staff informed you that the accounting records of Minx Bhd, related to cash sales amounting to RM 70,000 could not be located for the purpose of audit. According to Minx's financial controller, the records were destroyed during the recent flood. The total revenue registered for this financial year is RM 1,000,000. Collute Bhd (Collute) The statements of financial position of Collute shows inventory at cost of RM 2.6 million. The inventory was bought on 1 October 2020 to fulfil an order for a customer in Singapore. However on 4 November 2020, the customer went into insolvency and was not able to complete the transaction with Collute. On 29 November 2020 Collute sold the inventory for RM 2 million. The draft financial statements show that Collute's profit before tax is RM25.8 million and total assets are RM 78.2 million. Benux Bhd (Benux) The financial statements of Benux indicate the purchase of a motor vehicle from Saxon Sdn Bhd (Saxon), for RM38, 000, which has been included in non-current assets. When reviewing Benux's board minutes you discovered that Saxon is owned and managed by the husband of Benux's managing director. The directors of Benux refuse to disclose the transaction in the notes to the financial statements as they claim that the amount is not significant. The draft financial statements of Benux show total assets of RM 15 million. Required: For each of the situations outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each audit report. (9 marks)
