(a) Kilmister Co

Critical appraisal of extract from draft auditor’s report

Up to 1 marks per issue explained.
 – Addressee should be shareholders only (not directors)
 – Incorrect order – opinion paragraph should be before basis for opinion
 – Lack of specific reference to ethical code

Material uncertainty re going concern:
 – Opinion paragraph should be headed ‘qualified/adverse opinion’ followed by ‘basis for qualified/adverse opinion’
 – Modification due to material misstatement re absence of disclosure – ‘except for’ or adverse depending on auditor’s professional judgement re level of impact on financial statements
 – Incorrect use of ‘material uncertainty regarding going concern’ paragraph – this paragraph should be used when adequate disclosure has been made by directors in financial statements
 – Details of uncertainty re going concerns should be given in basis for qualified/adverse opinion paragraph

Long-term contracts:
 – Incorrect use of ‘other information’ paragraph – should be used to describe auditor’s responsibilities for ‘other information’ (e.g. rest of the annual report, including management report) and outcome of fulfilling those responsibilities

– Issue is area of significant auditor judgement which should be considered for inclusion as KAM which as a listed company, Kilmister Co should disclose in separate KAM section of audit report
 – KAM section should include explanation of what is a KAM
 – KAM section should explain why matter is considered to be KAM
 – KAM section should also explain how KAM was addressed by audit process

Maximum marks 10