Question 5b - Part1
The schedule of proposed adjustments to uncorrected misstatements included in Bradley Co’s audit working papers is shown below, including notes to explain each matter included in the schedule. The audit partner is holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.
| Statement of profit or loss | Statement of financial position | |||
|---|---|---|---|---|
| Proposed adjustments to uncorrected misstatements: | Debit $ | Credit $ | Debit $ | Credit $ |
| 1. Share-based payment scheme | 300,000 | 300,000 | ||
| 2. Restructuring provision | 50,000 | 50,000 | ||
| 3. Additional allowance required for slow-moving inventory | 10,000 | 10,000 | ||
| Totals | 310,000 | 50,000 | 50,000 | 310,000 |
1. A share-based payment scheme was established in January 2014. Management has not recognised any amount in the financial statements in relation to the scheme, arguing that due to the decline in Bradley Co’s share price, the share options granted are unlikely to be exercised. The audit conclusion is that an expense and related equity figure should be included in the financial statements.
Required:
(i) Explain the matters which should be discussed with management in relation to each of the uncorrected misstatements; and (9 marks)
(ii) Assuming that management does not adjust the misstatements, justify an appropriate audit opinion and explain the impact on the auditor’s report. (4 marks)