QUESTION 3Khalish is the auditor of Bright Bhd. preparing the final audit for the year ended 30 September2021 and reviewing the audit working papers. Two issues summarised from the review are asfollows:Situation 1:During the year, Bright Bhd. was named as a defendant in a suit for damages by its mainsupplier, Sunny Sdn. Bhd. for breach of contract. In October 2021, an adverse decision toBright Bhd. was rendered, and it is required to pay RM2 million sum of damages to SunnySdn. Bhd.Situation 2:Bright Bhd. has acquired a new subsidiary, Metal Sdn. Bhd. to supply construction materials.The acquisition was taken place in October 2021, and the first transaction between them wascarried out in early November 2021. The management claim that they did not disclose theinformation on the acquisition and transaction since both activities were carried out after thebalance sheet date. In addition, the management keeps on giving excuses when asked about themanagement's written representation. It is the only thing outstanding before the auditor's signedand dated report.Required:c. Should the audit partner sign the auditor's report before obtaining the written representationfrom management? Justify your answer.

A management representation statement or letter seems to be a type of letter produced by an…

Answered: QUESTION 3 Khalish is the auditor of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QUESTION 3 Khalish is the auditor of Bright Bhd. preparing the final audit for the year ended 30 September 2021 and reviewing the audit working papers. Two issues summarised from the review are as follows: Situation 1: During the year, Bright Bhd. was named as a defendant in a suit for damages by its main supplier, Sunny Sdn. Bhd. for breach of contract. In October 2021, an adverse decision to Bright Bhd. was rendered, and it is required to pay RM2 million sum of damages to Sunny Sdn. Bhd. Situation 2: Bright Bhd. has acquired a new subsidiary, Metal Sdn. Bhd. to supply construction materials. The acquisition was taken place in October 2021, and the first transaction between them was carried out in early November 2021. The management claim that they did not disclose the information on the acquisition and transaction since both activities were carried out after the balance sheet date. In addition, the management keeps on giving excuses when asked about the management's written…
Consider the following independent situations relating to the audit of five different audit clients for year ended 30 June 20X8. Assume that all the situations are material. For each of the above cases, state the appropriate audit opinion that the auditor would require. Give reasons 1. new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and has not been disclosed. A special meeting was held between the CFO and the Finance Team and the Lead Partner from the Audit team, but nothing was resolved 2. (ii) A new start-up company specialising in air-drone mail/package delivery has grown strongly in the past year. Over the past three years the company has made consistent losses, borrowed heavily, experienced staff turnover and dealt with…
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You a partner incharge of the audit for Bargin Ltd, a private company. The completion of the audit report is pending for the income year 2018 and you have recorded some situations where possible action is required They are listed below: Bargin Ltd, carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. Management of Bargin Ltd, refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. You were unable to confirm accounts receivable with Bargin Ltd, customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. One week before the end of fieldwork, you discover that the audit manager on the Bargin Ltd, engagement owns a material amount of Bargin Ltd, common stock. You relied…
While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: I. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the…
You are the audit partner of John& Co., a large audit firm that is operating in sydney. Your firm audited ABC Ltd, a custom-made products manufacturing company. ABC Ltd declared bankruptcy within six months of receiving an unqualified auditor's opinion on its financial statements for the year ended 31 December 2018. The XYZ bank initiated a court challenge against your firm on the grounds that the bank disbursed a $2,500,000 loan to ABC Ltd in May 2019, but ABC went bankrupt shortly afterwards. The plaintiff alleged that your firm's 2018 audit of ABC was deficient and argued that the auditors failed to uncover that the value of ABC's inventories were substantially lower than reported on the balance sheet. Your audit firm did not issue privity letters to any third party in the past four years. With reference to the principles established in common law, explain whether the XYZ bank is likely to be successful
Brown Investments Ltd, is a company based in East London. It has a financial year end of 30 April.At its annual general meeting (that took place in March 2023), the shareholders of Brown Investments Ltd appointed Eagle-Eye Inc. as its external auditor. During the current audit of Brown Investments Ltd.’s financial statements one of the audit team members discovered that taxable income is understated by the Senior Accountant Mr. Hustler, due to a certain amount of the sales having been fraudulently not recorded. Further investigations conducted pointed out that Mr. Hustler deliberately failed to report output tax and he was also underreporting input tax.Mr Hustler was also in the habit of underpaying tax as he thought the government was corrupt and paying tax was a waste of valuable company resources, he opted to increase the salaries of his employees as he felt it was the moral thing to do. The auditors felt that Mr. Hustler’s actions resulted in material understating of the VAT…
In examining the books for Hilroy Limited, an auditor, completing the audit for December 31, 2023 found that certain items had been overlooked or might have been incorrectly handled in the past:1. A tax lawsuit related to the year 2021 was settled in 2023. It was determined that the company owed an additional $92,000 in tax related to 2021. The company did not record a liability in 2021 or 2022 because the possibility of losing the lawsuit was considered remote. Management recorded an adjustment to retained earnings in 2023 as a correction of a prior period error.2. Management accrued production salaries at December 31, 2022 of $87,000. The amount should have been $46,000.3. On January 15, 2021, the company purchased equipment with a cost of $225,000, useful life of 6 years, and a residual value of $40,000. The company uses straight-line depreciation. Depreciation expense was calculated without including the residual value in 2021, 2022 and 2023.Instructions:a. Identify what type of…
You are an audit senior at Digby and Co and are completing the audit of ABC Ltd for the year-ended 31 December 2022. The following items are outstanding: On 2 January 2023, Golf is Us, a major customer of ABC, was placed into administration owing £211,000. On 3 January 2022, the sales director left the company. The sales director is suing ABC for constructive dismissal. If successful, the claim amounts to £280,000. On 5 February 2023 there was a fire at the premises of the third party warehouse provider, which destroyed all inventory held there. Approximately one half of ABC's inventory was stored in these premises. The total value of inventory stored at the premises was £1,054,000. The financial statements include a £40,000 provision for an unfair dismissal case brought by an ex-employee of ABC. On 7 February 2023 a letter was received from the claimant's solicitors stating that they would be willing to settle out-of-court for £25,000. It is likely the company will agree to this.…

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