Question Five (10 Marks) For each of the five independent situations described below, indicate the audit report the auditor should issue and provide justification for your answer. Note, except for the matters discussed in each question, assume that the financial statements present a true and fair view. (1) Smyna Ltd's financial year ended on 31st October 2021. On 8th November 2021, Smyna received a takeover offer from Osprey Ltd at a premium of 30% to the share price on that date. The directors have disclosed this information in the subsequent events note in the financial statements. What type of audit report should you issue? (2 Marks) (2) Abix Ltd is a construction company that is building an office block in Parramatta for Celca Property Trust. Due to problems with council building approvals and the discovery of asbestos on the building site, the project is behind schedule and the company is in danger of not meeting a major completion milestone that will allow it to receive a large payment from Celca. This will result in a cashflow shortage and could result in Abix not being able to make a loan repayment to Westpac on the due date. Correspondence between Abix and Westpac reveals that Westpac are willing to delay the payment for a maximum period of one month. The company has correctly disclosed these facts in the directors' declaration and in the notes to the accounts. Which type of audit report should you issue. (2 Marks) (3) Due to a computer system failure in your client's sales system, it was impossible for your GAS to access the files and automatically generate a list of customers for accounts receivable confirmation. This forced you to use subsequent receipts testing instead. The results of this test showed that Accounts Receivable was fairly stated. Accounts Receivable is a very significant account for your client, and they have a strong positive cashflow and a history of very low bad debt levels. What type of audit report should you issue? (2 Marks) (4) Your audit client, BVZ Batteries Ltd, manufactures and sells specialised batteries for use in portable medical equipment. You have verified the production cost of the inventory as $13 million. However, due to a falling Australian dollar and a large increase in demand for these batteries, the company has estimated that the net realisable value of the inventory is $17 million, and they have revalued the inventory to this amount in their financial statements. Your analysis of the market for the batteries suggests that the inventory really could be sold for $17 million. Which kind of audit report should you issue? (2 Marks) (5) Pelegin Ltd has a major subsidiary in Spain. As your audit firm does not have an office in Spain, you have used the Spanish audit firm Garcia and Navas as a component auditor for the subsidiary. During the audit, Gracia and Navas had its accreditation revoked by the Spanish corporate regulator and they are no longer legally able to provide audit services. There is no time to appoint a new auditor for the Spanish subsidiary and your own staff are not able to conduct the audit of the Spanish subsidiary, due to legal restrictions and language difficulties. What type of audit report should you issue? (2 Marks)