The following are two extracts from the same audit report produced by the audit firm PwC on the financial statements of Allied Farmers Limited. The audit report was dated 30 September 2010 and related to Allied Farmers' 30 June 2010 financial statements:

 Qualifications

Going concern

As described on page 43 of the financial statements, these financial statements have been prepared on a going concern basis. The validity of this assumption depends on the ability of the Company and the Group to generate sufficient future cash flows from the various funding initiatives set out on page 43. We have been unable to obtain sufficient audit evidence upon which to form an opinion whether application of the going concern assumption remains appropriate. These financial statements do not include any adjustments that may need to be made to reflect the situation should the Company and Group be unable to continue as a going concern. Such adjustments may include assets being realised at other than the amounts at which they are currently recorded in the balance sheet. In addition, the Company and Group may have to provide for further liabilities that might arise and to reclassify certain non-current assets and liabilities as current.

Receivership of significant subsidiary

As described on page 33 and in Note 44 of the financial statements, Allied Nationwide Finance Limited ("ANF"), a material subsidiary of the Company, was placed in receivership on 20 August 2010 by its Trustee, The New Zealand Guardian Trust Company Limited. The impact of ANF on the Group financial statements is pervasive and, as a consequence of the receiver taking control of ANF and its accounting records, we have been unable to complete our audit of ANF and therefore the Group financial statements.

Qualified opinion on the Company's and Group's financial statements

We have obtained all the information and explanations we have required other than as explained in the qualification paragraphs above. In our opinion proper accounting records have been kept by the Company as far as appears from our examination of those records.

Because of the potential effect of the limitation of the scope of the evidence available to us as described in the qualification paragraphs above, we are unable to form an opinion on whether the Company and Group financial statements on pages 25 to 93:

(a) comply with generally accepted accounting practice in New Zealand; (b) comply with International Financial Reporting Standards; and

(c) give a true and fair view of the financial position of the Company and Group as at 30 June 2010 and their financial performance and cash flows for the year ended on that date.

 

REQUIRED:

(a)  Summarise the current professional responsibilities of auditors with respect to the going concern assumption. Clearly reference any auditing standard(s) referred to in your answer.

(b)  Based on the audit report extract above, explain and discuss the meaning and implications of PwC's audit opinion. Your discussion should refer to (but not be limited to) the:

-  specific type of modified opinion issued (i.e., qualified due to limitation of scope; qualified due to disagreement; adverse; or disclaimer),

-  level of assurance provided,

-  likely reasons for the opinion,

-  factors likely to have been considered by the auditors before issuing their report, and

-  likely impact on current and prospective shareholders of Allied Farmers Ltd.