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Information about Cook's Furniture Ltd and financial statements at the bottom

PART C FINAL AUDIT

Question 6 Audit Report

Before the audit report was signed, the audit team encountered the following situation. Treat each situation independently and assume the remaining financial statements are fine.

1. A property owned by Cook's Furniture Ltd was sold to Lidia Preston, the wife of Howard Cook in June 2020 (refer to the information about Cooks Furniture Ltd). The property has a market value of four million and was sold at 3.2 million. Management did not disclose this in the financial statement because they believed this was a private matter. The disposal of this asset has been appropriately accounted for on the financial statements (e.g. the asset was removed from PPE and the loss of disposal was correctly recognised as an expense).
2. The subsequent selling price of the ready-made furniture range suggests the inventory valuation as at 30 June 2020 should be written down by $48,000 but management only wrote $38,000 off as per the financial statements because they were confident that they can increase the selling price again in 2021 after people settling back to normality.
3. Carl Cook decided to retire in 2021 due to health reasons, Carl is willing to sell his shareholding to the remaining shareholders. However, the BoD decided to explore the potential of selling the business. By the time to sign the 2020 financial statements, the company has not commenced a negotiation with any potential buyer. The BoD said to the auditor that they may not sell the business if they cannot get a good deal. Carl's retirement decision is disclosed on the financial statements, but not the intention to sell the business.

REQUIRED: For each of the above situation:

a) Discuss the audit procedure that the auditor needs to perform in relation to each situation.

b) Explain which audit opinion is appropriate for each situation.

Information about Cook's Furniture Ltd

3:02 L J M . Cut .ill 40% Cooks Furniture Fina...Final 30 June 2020 - Saved V A B D E F G IN Statement of Financial Position As at 30/06/2020 2020 2019 Note Draft Audited $000 $000 Assets 9 Cash and Cash Equivalents 9 14,514 18,293 10 Accounts Receivable 10 443 932 11 Inventory 11 15,039 18,088 12 Other financial assets 12 272 727 13 Prepaid Expenses 748 490 14 Total current assets 015 38,528 15 16 Property, Plant & Equipment 13 37,066 45,944 17 Intangible Assets 14 951 1,189 18 Total non-current assets 38,017 47,133 19 Total Assets 69,032 85,661 20 21 Liabilities 22 Borrowings 15 5,440 10,181 23 Trade creditors 16 4,478 5,789 24 Other creditors and accruals 2,514 3,040 25 Deferred revenue 17 10,529 13,199 26 Current tax payable 145 654 27 Provisions 18 1,362 1,477 28 Total Current Liabilities 468 34,339 29 30 Borrowings 15 8,025 6,650 31 Deferred revenue 17 68 32 Provisions 18 2,322 2,440 33 Deferred tax 76 400 34 Total Non Current Liabilities 10,491 9,490 35 Total Liabilities 34,958 43,829 36 Net Assets 34,073 41,832 37 Equity 38 Share capital 19 1,346 1,682 39 Reserves 212 718 40 Retained Earnings 32,516 39,432 41 Total Equity 34,073 41,832 42 43 44 45 46 47 48 49 50 O