Reference no: EM132745764

Question - For each of the four scenarios below provide an outline of the key audit issue. Further describe the effect each of the above scenarios has on your auditor's report, if management were to refuse to make any changes you deem necessary.

Assume you are an auditor and you are facing the following separate and independent situations, the effects of all items below are material:

1. During your audit of Dubold Batteries, you identified that the company did not keep appropriate books and records. Transactions were not entered promptly and reconciliations not performed. A temporary accountant that was employed was unable to reconcile the bank accounts. Overall you are not satisfied that all transactions that occurred during the year are reflected in the financial report.

2. You were engaged to examine Cutter Steel Company Ltd.'s financial statements after the close of the financial year. Because you weren't engaged until after the financial report date, you weren't able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter's financial statements are presented fairly, including inventory, as you were able to satisfy yourself through the use of alternate audit procedures.

3. The company that runs a dairy farm has prepared the financial report on a going concern basis. Shortly after the year-end the company's contract with a major supermarket was cancelled. Without this customer you expect the business to cease trading within six months and it is unlikely that the company will be able to secure any new contracts in that time.

4. A significant proportion of a retailer's sales are on a cash basis and inadequate records have been maintained. There are no audit tests that can be performed to satisfy yourself that the cash sales are accurate.