Reference no: EM132613945

You are an external auditor and you are facing the following separate circumstances, the effects of all items below are material:

• You are the auditor of BML Ltd (BML). You have identified a material misstatement of the property, plant and equipment account. BML has not changed its depreciation rates for the past four years. However, recent technological changes in the industry have convinced you that the useful lives of BML's assets need to be adjusted downwards, resulting in an increased depreciation charge. BML's directors have refused to make any change to the depreciation rates, despite you explaining that this will put them in breach of the requirements regarding impairment tests contained in Australian accounting standards.

• You are the auditor of NF Ltd (NFL). The audit for NFL was extremely difficult this year, as the company did not keep appropriate books and records. As the accounting department was chronically understaffed, transactions were not entered promptly and reconciliations not performed. In an attempt to sort out the mess, a temporary accountant was employed; however, she was unable to even reconcile the bank account at year end. You are not satisfied all transactions that occurred during the year are reflected in the financial report.

• A 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 marks)

Required:

For each of the circumstances above:

Question a) Outline the nature of the issue.

Question b) Describe the effect of each of the above circumstances on your auditor's report if management were to refuse to make any changes you feel necessary in order that the financial report gives a true and fair view.