You are the Audit Manager of Dawes & Kenneth. You are reviewing the work carried out by the audit teams in relation to the audits of two unrelated clients, Shipton Hotels and Telford. Both clients are listed companies and their respective accounting years ended on 31 May 2020.

The following matters have been highlighted in relation to each audit client:

i. Shipton Hotels

Shipton Hotels leases various properties and equipment. The company has not applied IFRS 16 Leases for reporting these leases in the financial statements. Had it applied IFRS 16, the companys total assets would have increased by 400 million, and its lease liability would have increased by a similar amount. In addition, the net charge to the statement of profit or loss for the excess depreciation and finance charge would have been 45 million.

On 01 September 2019, Shipton Hotels invested 70 million in acquiring 80% stake in Pembury, a rival hotel which is struggling to survive under current global lockdown conditions. Goodwill of 12 million was recognised at the date of acquisition of Pembury but no impairment review had since been carried out. The directors had justified the decision not to carry out impairment review of goodwill on acquisition of Pembury with the explanation that the current problems being faced by the travel and hotel industry would be over very quickly. Shipton Hotels reported profit before tax of 30 million for the year ended 31 May 2020: total assets of 500 million and total non-current liabilities of 390 million.

ii. Telford

There is a pending lawsuit at the High Court against Telford by one of its customers. The customer is seeking damages for 10 million for breach of contract. Dawes & Kenneths audit team sought the opinion of Telfords solicitors about the likely outcome of the lawsuit and the solicitors sent a written reply to the effect that the lawsuit would probably go against Telford. The directors of Telford are of the view that a disclosure of the likely liability as a contingent liability would be sufficient as the judgement on the case has not yet been delivered, and even if the case goes against Telford at the High Court, they intend to appeal all the way to the Supreme Court.

Telfords profit before tax for the year ended 31 May 2020 was 25 million.

Required:

If each of the above cases remains unresolved at the date of preparing the audit report, explain the impact on the audit opinion to be expressed in the audit report.