Qualified opinion
The draft opinion paragraph uses the wording “the financial statements are likely to be
materially misstated“ this does not indicate a firm conclusion and could give users of the
report some doubt as to the credibility of the report.
Instead we can use the wordings “ except for the effects of the matters described, the FS
show a true and fair view’.
Emphasis of Matter
The draft auditors report includes an EOM which consists of 2 points, neither of which are
appropriate for inclusion in an EOM.
First the EOM describes a fraud that has taken place during the year – this matter is
immaterial in monetary terms, and therefore is not likely to be considered fundamental.
Second, EOM refers to difficulties encountered in the audit of trade receivables due to the
group finance director refusing to allow access to necessary sources of evidence. The
appropriate action should be reporting to TCWG. It is not professional to highlight illegal
activity in this way and this amounts to breach of confidentiality.
BASIS FOR QUALIFIED OPINION:
This para should consider further reasons for the modification including a description and
quatification of the financial effects of material misstatement.
Also the evidence($450000)-___________________________dont match
28. Kilmister Co
(a) Critical appraisment of Draft auditor’s report
The first paragraph is presented in incorrect order. The opinion paragraph comes
above the Basis for Opinion paragraph.
GOING CONCERN ISSUE
Kilimister co is financed by a long-term loan from it’s bankers which is dure for
redemption, and company is renegotiating new loan which is yet to be reach a final
agreement. Further, it is observed that loan agreement is essential to the survival of the
company.
”IF MANAGEMENT PREPARES FINANCIAL STATEMENTS ON A BREAK UP BASIS, THEN
AUDITOR CANNOT INCLUDE “MATERIAL UNCERTANITIES RELATED TO GOING CONCERN
PARAGRAPH”.
Other Information
The extract from the draft auditors report states that significant judgement is applied in
assessing the % of completeness of long term contracts and that this % is then applied in
calculating the revnue for the year This is a matter requiring significant auditor attention and
since Kilimister is a listed Co this should be disclosed in KAM section.
The KAM section should explain why this matter is a KAM due to the significant jusgement
involved in assessing the % completness of long term contracts.
Material Uncertainty related to Going Concern :
The use of “material uncertainity relating to going concern” paragraph is the draft auditors
report is incorrect. This paragraph should only be used when adequate disclosure has been
made by the directors in the financial statements. Given that this disclosure is not been
made therefore use of this para is inappropriate in this case.
In this case therefor the absence of any disclosure in the FS in relation ti uncertainities
regarding going concern is grounds
(A)(i) FRAUD goodman
IMPLICATIONS OF THE FRAUD
If the full extent if the fraud is $ 40000 then the audit team is correct to determine that the
fraud is immaterial to the financial statements. However, without performing further audit
procedures it is not possible to reach a conclusion, There is no auditor-generated evidence ti
support the assertion that $40000 is the total amount of stolen funds,
Relying solely on the conversation between the group FD and the manager who carried out
the fraud is not acceptable as this evidence is not reliable.
The group FD could be involved in the fraud and attemting to deceive the auditor and
minimise the suspected scale of the fraud to reduce further procedures brig carried out.
Actions
- Further independence investighation s should be carried out in order for the auditor
to obtain suffient evidence relating to the amount of fraud.
- Secondly, the auditor should consider whether reporting is necessary, given that the
group FD alerted the auditoir about the fraud it seemslike the mamnagmenta nd
