Reference no: EM132563908

Question - For the following independent situations, assume that you are the audit partner on the engagement:

1. During the audit of Aswadi Ltd, you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated.

2. You are auditing Woodcold Linen Services Pty Ltd for the first time. Woodcold has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is correctly in accordance with approved accounting standards. The client did not authorize you to do test work for any of the previous years.

3. You were engaged to audit Waja Steel Ltd's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Waja's financial statement are presented fairly, including inventory about which you are able to satisfy yourself by the use of alternative audit procedures.

4. Four weeks after the year-end date, a major customer of Bina Bangun Ltd declared bankruptcy. Because the customer had confirmed the balance due to Bina at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10 percent of accounts receivables and 20 percent of net earnings before taxes.

5. You complete the audit of Johnson Department Store Pty Ltd and, in your opinion, the financial statements are fairly presented. On the last day of the field work, you discover that one of your supervisors assigned to the audit had a material investment in Johnson.

Required - For each situation, do the following:

1. Identify which of the conditions requiring a modification or a deviation from an unqualified standard report is applicable.

2. State the level of materiality as immaterial, material or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.

3. Given your answers in parts (a) and (b), state the Type of audit report that should be issued. If you have not decided on one level of materiality in part (ii), state the appropriate report for each alternative materiality level.