Reference no: EM132690821

Problem 1: You are the auditor of Leon Pty Ltd (Leon), a property development company. Leon was initially funded by a shareholder's loan that its founder provided. Further growth has been financed by a bank overdraft facility that is repayable on demand. Leon's current ratio has been deteriorating due to significant delays across a number of large projects. As a result of the delays, Leon has been unable to collect significant portions of payments as specified in the respective project contracts. Leon exceeded its overdraft facility of $1m on a number of occasions during the year, incurring significant interest charges. You have reviewed Leon's correspondence with the bank noting that the available overdraft balance will be increased to $1.5m. You believe this will substantially improve Leon's cash flow. Leon's management have appropriately disclosed this information in the financial report. If you are satisfied in all other material respects, which of the following would be the MOST appropriate audit opinion to be issued for the engagement?

a) Unmodified opinion.
b) Unmodified opinion with material uncertainty related to going concern section drawing attention to relevant management disclosure on the issue.
c) Qualified audit opinion with basis for qualified audit opinion paragraph drawing attention to relevant management disclosure on the issue.
d) Adverse opinion.