Reference no: EM132974572

Question -

Today's date is 1 July 20X5 and you are a manager in Winterborn & Co responsible for the audit of Slate Co. The audit of the financial statements for the year ended 31 March 20X5 is nearly completed and the auditor's report is due to be issued next week. The financial statements show a profit of £1.6 million and total assets of £9 million. The following issue has been left for your attention. Slate Co provides freight services between seven major cities. The cities are located at significant distances from each other meaning deliveries can take several days. During the year there were a number of protests by independent lorry drivers who were angry about increases in fuel taxes. The protests involved blockading major roads which prevented traffic from getting through. This caused significant delays to Slate Co in reaching its customers. Slate Co has offered all customers affected by the delays a 30% discount on invoices relating to delayed deliveries during the protests. The discount offered to all customers totaled £53,000. This is not yet recognised in the financial statements. One customer, Kola Co, is refusing to accept the discount and refusing to pay the full invoiced amount of £72,000 as Kola Co claims it was unable to fulfil a significant contract of its own because of the delays.

Required -

(a) Comment on the matters that should have been considered, and recommend any further audit procedures that should be performed in respect of the issue described above.

(b) You are also the audit manager for two audits that are nearing completion and the auditor's reports are due to be signed next week. Both clients have a year-end of 31 March 20X5. The following issues have been left for your attention. Vale Co The Chair's report of Vale Co states that investment property rental forms a major part of revenue. However, a note to the financial statements shows that property rental represents only 1.6% of total revenue for the year. The audit senior is satisfied that the revenue figure in the financial statements is correct. The audit senior has proposed unmodified audit opinion as the opinion does not extend to the Chair's report.9 Zenta Co Procedures on the audit of Zenta Co identified a transfer of cash from Harman Co 15April 20X5. The audit senior documented a discussion with the finance director of Zenta Co, who explained that Blush Co commenced trading on 4 April 20X5, after being set up as a wholly-owned subsidiary of Zenta Co. The audit senior has proposed an unmodified opinion because the matter does not impact the current year's financial statements.

Using practical examples of modified audit reports, critically appraise the audit senior's proposals for the auditors' reports of Vale Co and Zenta Co.