4) Consider each situation independently and describe the audit opinion that should be given and explain why.a) The client estimated its Provision for Bad Debts based on an average of actual bad debts over the past five years. The client has always used this accounting policy when estimating this provision. The auditor considered the amount to be a reasonable one. The client has also properly accounted for and disclosed it in the financial statements. b) The client (a large department store) used the Last In First Out (LIFO) method to determine the cost of its closing stock. The IFRS’s does not allow the use of LIFO in accounting for inventory. The client is not willing to change this accounting policy. c) In rare circumstances e.g. when the client is not a going concern, in order to give a true and fair view, management may prepare financial statements on a basis other than going concern basis. The client which is no longer a going concern has still prepared the financial statements on the going concern basis. The client is unwilling to change their basis of preparation. d) The client refused to give the auditor access to the bank statements and would not allow the auditors to send a confirmation letter to their bankers. As such the auditor was not able to get sufficient appropriate on the year-end bank balance only. e) The auditor was not allowed access to the client’s accounting records, ledgers, supporting documentations, reports and general information, as the client has outsourced their entire accounting function to an external service provider. The service provider has denied access to the auditor after several requests were made verbally and in writing.
4) Consider each situation independently and describe the audit opinion that should be given and explain why.
a) The client estimated its Provision for
b) The client (a large department store) used the Last In First Out (LIFO) method to determine the cost of its closing stock. The IFRS’s does not allow the use of LIFO in accounting for inventory. The client is not willing to change this accounting policy.
c) In rare circumstances e.g. when the client is not a going concern, in order to give a true and fair view, management may prepare financial statements on a basis other than going concern basis. The client which is no longer a going concern has still prepared the financial statements on the going concern basis. The client is unwilling to change their basis of preparation.
d) The client refused to give the auditor access to the bank statements and would not allow the auditors to send a confirmation letter to their bankers. As such the auditor was not able to get sufficient appropriate on the year-end bank balance only.
e) The auditor was not allowed access to the client’s accounting records, ledgers, supporting documentations, reports and general information, as the client has outsourced their entire accounting function to an external service provider. The service provider has denied access to the auditor after several requests were made verbally and in writing.
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