Question 5 (10 marks-30minutes)

For each of the following independent situations discuss the type of audit opinion(s) to be issued, give your reason(s) and in each situation describe any changes necessary to the standard (unqualified) audit report. State your assumptions and consider in your response all possible alternatives. Assume the events discussed in each situation are not immaterial.

Situation 1 (5 marks)

A member of the audit team noted that a lease for a vehicle was recorded as a capital lease when in fact it was an operating lease. The staff member noted the unadjusted error and concluded that the effect on a number of accounts was significant. The client refused to record the lease as an operating lease and to make any adjustments.

Situation 2 (5 marks)

During the audit at a drug manufacturing company, the inventory manager prevented the auditor from checking the expiry date of a certain expensive drug. The inventory manager stated that accessing the expiry date is difficult because the drug requires special-purpose packaging and wrapping when in the warehouse. The manager informed you that he is certain the drug is good for another nine months.