Question
This is a question about forming audit opinions. You are the auditor of Atlantic Catering Limited (ACL), a company that provides catering services for major
This is a question about forming audit opinions.
You are the auditor of Atlantic Catering Limited (ACL), a company that provides catering services for major corporate events throughout Australia. The balance date for ACL is 30/6/21. On the 15th of July ACL was contacted by the legal team of one of their clients, Corporate Events Limited (CEL). CEL alleged that food provided by ACL had caused serious cases of food poisoning resulting in significant losses for CEL including costs associated with the hospitalisation of numerous attendees of a major function held by CEL. The legal team for CEL has advised that the attendees who were hospitalised have commenced legal action against CEL, claiming $10 million in damages as compensation in a class action. In the event of a successful action against CEL by the attendees, CEL is intent on recovering losses associated with the court case, from ACL. The balance sheet of ACL discloses net assets of $30 million. The board of ACL advise you that they are relieved that the event has happened after balance date, as it does not need to be disclosed to the shareholders until the next financial year. Management of ACL have therefore decided that this event will not be disclosed in the financial reports at all as they feel it will mislead investors.
In addition to the class action, you are aware of a restructure undertaken by ACL during the reporting period ended 30/6/21. During this restructure a property in the Melbourne owned by ACL has been decommissioned (will no longer be used). ACL would like to sell the property (the likely selling price will be $5 Million) however, a buyer has not yet been found. In the meantime, the property will no longer be used by ACL and will remain vacant until a suitable buyer can be found. The property has been valued and disclosed in the financial reports at its fair value ($8 Million). The board of ACL are very clear in their opinion that the property in Melbourne must be recognised in the balance sheet at its fair value.
Required:
Taking into consideration the information provided and with reference to appropriate Auditing Standards, what type of audit report would you issue if management refused to accept your advice in relation to the issues identified above?
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