The nature and purpose of auditing

You are working for an accounting firm. At a family event, you meet your cousin Sam, who is very close to you. He shares the news with you that he won a Lotto prize worth $1.5 million. Previously, he worked as a tour guide, but he had recently lost his job due to the Covid-19 pandemic. He was lucky, as he bought a Lotto ticket online on the day when he lost his job. Rather than investing his money in other ways (for example, buying several houses), he decided to buy Fox Ltd, a New Zealand vitamin and supplement manufacturer, due to his specific interests.

However, Sam knows little about accounting, and you are worried that the financial statements provided by the company may have been falsified to get a higher selling price. You ask him whether the financial statements were audited, and Sam replies, Yes and that an unmodified audit opinion was issued, stating that in the auditors opinion, the financial report provides a true and fair view of the entitys financial performance and financial position. Sam goes on explaining to you that he has done a quick search on Google and found that an unmodified audit opinion means a clean audit opinion. Hence, Sam believes that the auditors report provides absolute assurance that there are no fraud or misstatements in the financial report and a guarantee that the company will not go bankrupt.

Explain to Sam whether his conclusions about Fox Ltd are appropriate based on the audited financial report. Your explanation should be based on your understanding of the nature and purpose of auditing and reference to the scenario.