Page 107 - F1 Integrated Workbook STUDENT 2018

External audit

Solution

(a) There is "insufficient appropriate evidence" since there is a lack of
evidence available to determine whether inventory valuation is correct.

The inventory value is a material amount since it is 8% of sales revenue
and 27% of profit.

A modified report with a "qualified opinion" over inventory will be issued.

(b) There is a "material misstatement" as the event after the reporting date is
an adjusting event in accordance with IAS 10 and therefore the debt
should be written off.

The debt of $50,000 is material since it is 10% of profit and 25% of the total
receivables.

A modified report with a "qualified" opinion over receivables will be issued.

(c) There is a "material misstatement" since this is a contingent liability in
accordance with IAS 37 and so should be disclosed by note.

The matter is material. A modified report with a "qualified" opinion will be
issued.

(d) There is "insufficient appropriate evidence" since if there is no method
available to confirm cash sales.

It can be considered "so material and pervasive" since if cash sales cannot
be confirmed, other figures in the financial statements may also be
incorrect.

A modified report with a "disclaimer opinion" will be issued.

(e) There is a "material misstatement" since legislation requires companies
to publish statement of profit or loss.

This can be considered "so material and pervasive".

A modified report with an "adverse opinion" will be issued.

(f) An unqualified opinion since the auditors agree with the treatment and
disclosure of the contingent liability.

However, there is a material inherent uncertainty (the outcome of the court
case will be determined in the future).

An unmodified report with a ‘fundamental uncertainty’ emphasis of matter
paragraph.

97