Exam 12: The Auditors Reporting Obligations

The directors of a listed company refuse to disclose directors' remuneration of $400 000 on the basis that it is not material.Net profit after tax is $25 million and net assets are $100 million.The appropriate auditor's report is:

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing an audited financial report.If the auditor concludes that the financial report does require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may:

Swift Ltd has disclosed the fact that they are being sued for $3 million.Swift Ltd reported a profit for the year of $300 million and has total assets of $75 million.You conclude that disclosure of the litigation is adequate.What type of opinion should you express on the financial report of Swift Ltd?

All of the following are true with respect to the auditor's consideration of information other than the audited financial report that are included in a client's annual report except:

The auditor's best course of action with respect to 'other financial information' included in an annual report containing the auditor's report is to:

Prince, an auditor, was engaged to audit the financial report of Randwick Company after its financial year had ended.Prince neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied concerning both after applying alternative procedures.'Prince's auditor's report most likely contained a(n):

If an entity's external auditor expresses an unmodified opinion as a result of the audit of the entity's financial report, readers of the auditor's report can assume that:

Your client, Sharpe Ltd, is being sued by one of its competitors for $40 million for an alleged patent infringement.Your client has assets of $80 million and a reported profit of $20 million.The client has disclosed the lawsuit in a note to the accounts along with a statement indicating that they intend to vigorously defend the suit and are confident of winning the suit.Your independent legal advice supports this view and you are satisfied with the details provided by the client in the notes to the accounts.What type of opinion should you express on the financial report of Sharpe Ltd?

Higgins Insurance Ltd is trading profitably at 30 June 20X0 as reflected in its financial report.On 24 July 20X0 there is a hailstorm in Sydney that creates unprecedented damage.Although Higgins had undertaken all the normal reinsurance processes, it is unlikely that they will be able to pay all claims and there is a high probability that the company will have to be wound up.The auditor believes that the financial report as at 30 June 20X0 is true and fair and that this natural disaster is adequately disclosed.The auditor should issue:

Cassidy Ltd, a listed company, refuses to separately disclose directors' fees of $2.5 million on the basis that they believe they are quantitatively immaterial.Profit for the last year was $980 million.The auditor should issue a(n):

An auditor's report on comparative financial reports should be dated as of the date of the:

An auditor would issue an adverse opinion if:

Richards Ltd has reported losses two years in a row and has a debt to total assets ratio of 0.90.In addition, a $5 million debenture is maturing next year and the company has not set aside any funds to repay the debt.The parent entity of Richards Ltd has decided to repay the debenture when it matures and provide sufficient funding to cover any additional losses that Richards Ltd might incur.Richards Ltd has not disclosed these arrangements in its financial report and the auditor is adamant that it should be brought to the shareholders' attention.What type of opinion should the auditor express on the financial report of Richards Ltd?

Costello, as principal auditor for the consolidated financial report, finds that the audit of a major subsidiary is qualified by another auditor.Costello does not consider the qualification to be material relative to the consolidated financial report.What recognition, if any, must Costello make in his auditor's report to the qualified report of the auditor of the subsidiary?

The financial report of Fast Dollar Ltd indicates that there may be some going concern problems.However, the auditor concludes, based on mitigating factors, that the client will most likely continue as a going concern during the next year.The mitigating factors are adequately disclosed in the accounts.What type of audit opinion should the auditor express?

When an audited financial report is presented in a client's annual report containing other information, the auditor should:

An entity is facing significant litigation as a result of dumping oil in the ocean.This is adequately disclosed in the notes to the financial report.The appropriate auditor's report is:

Under which of the following sets of circumstances might an auditor disclaim an opinion?

On 2 July 20X0 Fluro Paint Ltd received a notice from its primary suppliers that all wholesale prices would be increased by 10 per cent, to be effective immediately.On the basis of the notice Fluro Paint Ltd revalued its 30 June 20X0 inventory to reflect the higher costs.The details of the adjustment were disclosed in the notes to the financial report.The inventory adjustment was material.The auditor of the 30 June 20X0 financial report would issue:

An entity operates in a highly regulated industry with special, legislated reporting requirements, with which it has complied.However, this has resulted in it not complying with the requirements of some Australian Accounting Standards.Note 1 to the accounts states that the accounts are prepared in conformity with both the special legislated reporting requirements and the Australian Accounting Standards.What type of audit opinion should be issued?