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Hello Sir,
Can you please briefly explain the impact of following two issues on audit report?1.Vista plc, a supplier of retail display equipment, has included in its income
statement, immediately below profit after tax, an exceptional loss of $3.7
million on the sale of a trade investment. The accounting treatment is not in
accordance with accounting standards, which require the loss to be taken into
account in arriving at the profit or loss before taxation.
The pre-tax profit of Vista plc for the year ended 30 September is $694,000.2.Expo Ltd exports a significant amount of its products and has a major
distribution centre in an overseas country where there has been a military
coup. As a result of travel restrictions imposed by the military junta, it was
not possible for your firm to attend the-year end physical inventory count.
The inventories at the overseas distribution centre at 30 September
represented 75% of Expo Ltd’s inventories
thanks in anticipation.Vista Plc Audit
(assume the misstatement if not corrected by management)
Matter is material and can also be pervasive. (subjective judgment of auditor is needed for pervasiveness) a qualified except for opinion shall be given if only material. or an adverse opinion if the matter is material and pervasive.
(I would say its material and pervasive so an adverse opinion shall be give,)Expo Ltd
75% of inventory is material therefore except for opinion should be given.
If it is both material and pervasive than no opinion shall be given. Disclaimer of opinion would be best choice in this case.
Again it depends on auditor’s judgment of material and pervasiveness.Strictly we don’t know for sure if inventory is material as we have no information about assets/revenue and profit.. The company might have efficient low inventory distribution mechanisms.
Also in Expo, we would have to consider going concern. If this major market were no longer available, then the company’s future might be at risk. If there were a going concern problem, management should disclose this in the notes and there would be an emphasis of matter para in the audit report. If no suitable disclosure were made, this would be grounds for qualification/adverse.
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