Question 4

You are the audit manager of Daffy & Co and you are briefing your team on the approach to adopt in undertaking the review and finalisation stage of the audit of your client Minnie Co.Profit before tax for the year is $10,000,000.You identified the following 3 issues:

Issue 1 Depreciation has been calculated on the total of land and buildings. In previous years it has only been charged on buildings. Total depreciation is $2,000,000 and the element charged to land only is $600,000.

Issue 2Minnie Co's computerise wages program is backed up daily, however for a period of two months the wages records and the back-ups have been corrupted, and therefore cannot be accessed. Wages and salaries for these two months are $1.5 million.

Issue 3 Minnie Co's main competitor has filed a lawsuit for $10 million against them alleging a breach of copyright; this case is ongoing and will not be resolved prior to the audit report being signed. The matter is correctly disclosed as a contingent liability.

Required:

Discuss each of these issues and describe the impact on the audit report if the above issues remain unresolved.

Issue 1:

Issue 2:

Issue 3: