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Dear tutor,
Could you please help me provide your thoughts on my choice of the audit report type?
My choice is we should issue a Qualified-Except for opinion. Reason is as below.
There is a limitation in scope to perform the audit work. However, the loss of some of its accounting records is not fundamental, hence not pervasive to the F/S.But my lecturer gave me the answer that this should be Disclaimer of opinion instead. I am confused.
Client B: a computer malfunction resulted in the loss of some of its
accounting records relating to one of its branches. There is no back-up or
other data-recovery method available. The area involved is considered
material but not fundamental to the financial statements.WELCOME to my AA forum!
First of all we have to assume that the results of the branch (revenue/profit/assets/liabilities) are material to the financial statements – if not, there would be no implications for the audit opinion.
Then, in the real world, we would have to know more about the accounting records that had been lost – if it was the sales/receivables ledger, for example, that would affect only receivables in SoFP and related P/L accounts such as bad debt expense.
In this case, yes, I am with you that the audit opinion would be qualified “except for”.
If, however, it had lost all accounting records for 2 months of the year (say) then that would be pervasive – so this, I think, is the scenario that your lecturer is envisaging.
In practice, however, some data recovery will always be possible – e.g. it will be possible to get duplicate bank statements from the bank – and suppliers will continue to send their statements for payment, and debtors will continue to pay what they owe (at least until such time that they might realise that they are not being chased for payment). Also, the loss of records does not mean the loss of assets/liabilities – PPE, inventory, physical cash, etc will all still exist – and so can be counted/measured for inclusion in SoFP.
Dear Tutor,
Tks for the welcome and detailed explanation. I fully understand it now with your kind help.
I also would like to ask about whether its a must to obtain evidence about the material misstatement of Opening Balance.
I have 2 questions regarding Opening Balance and the appointment of a new auditor with different answers as follows, the answer is based on trust between the current auditor and the previously-appointed auditor. Could you please share a tip if possible?Client D: your firm were appointed during the year after the previous audit
firm resigned suddenly. It is not possible within the budget to audit the
brought forward figures from the previous year.->Answer: Qualified-except for opinion.
->My thought: I do agree with this because I think Missing of opening balance figures is material but not pervasive.Client E: your firm was appointed during the year following the sudden death of the previous auditor, a sole practitioner. Although it had not been possible to find evidence to support this year’s opening balances, the audit partner considered that the previous auditor was highly professional and therefore last year’s figures could be relied on.
-> Answer: Unmodified with Emphasis of matter opinion because the audit partner trust the previous work 100%.
->My thought: I think this should be Qualified-except for opinion also. Issuing an Unmodified opinion means that no supporting evidence of Opening Balance is not material, am I mistaken somewhere please?
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