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Hi I have a question here.
The company involved in a litigation.
The directors agrue that no reference should be included in the notes to financial statements.
The amount of dispute are in the region of $15m.
Net profit of Douglas Plc this year is $45m.15m/45m x100% = 33% > 5-10% of the profit
It is material or pervasive?
Qualified opinion or adverse opinion?Thanks.
I would think qualified. The problem can be isolated and is only a missing note so it would appear that all the figures in the FS are ok.
Thanks Sir!
I have another question under the same topic.
The company depreciation policy writes off motor vehicles over 10 years.
It consistently reports losses of disposal on motor vehicles.
Depreciation charge p.a. is $5m
Net profit is $40m
Other componies in the industry use estimated lives of between 4-6 years.5m/40m x100% = 12.5% > 5-10% of the net profit
The consistent losses on disposal & the inappropriate depreciation charge p.a. affected the figures in P&L & B/S. Hence, auditor should express adverse opinon.Or
As long as the company consistently applied the same depreciation policy, regardless of the industry average estimates, the audit report should be unqualified.
Which one would be suitable for the above question?
You have jumped from adverse to unqualified.
The error in depreciation is material and consistent treatment does not correct this. The audit opinion would be qualified.
It is relatively rare to give an adverse opinion or a disclaimer as that is saying to shareholders that the FS are useless. Better to try to isolate the error by qualifying. In the above example, the error can be quantified and the audit report would show what the correct profit is.
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