Question 5 (a) Described below are situations which have arisen in independent external audit clients: (1) After balance sheet date, an auditor learned of heavy damage to one of a client's two plants due to a recent fire; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial report and appended notes prepared by the client did not disclose the loss caused by the fire. On 2 January 2015, the Retail Auto Parts Limited received a notice from its primary supplier that, effective immediately, all wholesale prices would be increased by 10%. On the basis of this notice, Retail Auto Parts revalued its 31 December 2014 inventory to reflect the higher costs. The inventory constituted a material proportion of total assets; the effect of the revaluation was material to current assets but not to total assets or net income. The increase in valuation is adequately disclosed in the footnotes. (ii) The auditor was unable to obtain confirmations from two of the client's major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures. (iv) The client restricted the auditor from observing the physical inventory. Inventory is a material item. (v) The client changed from FIFO to LIFO this year. The change was properly accounted for, justified, and disclosed. Required: For each situation, state the appropriate audit report and explain the rationale. (20 marks)