Question 5b - Part3
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 |
3. The estimate relates to slow-moving inventory in respect of a particular type of steel alloy for which demand has fallen. Management has already recognised a provision of $35,000, which is considered insufficient by the auditor.
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)