Audit completion, adjustments necessary, additional audit procedures, implications for auditor’s report

Generally up to 1 mark for each point assessed/procedure recommended:

(a) Toy Co

– Potential provision is material to Group accounts (calculation)
– Group accounting policy should be applied
– Adjustment needed to operating profit and current liabilities
– Recommend additional procedures (1 mark each)
– Material misstatement if not adjusted and qualified opinion
– Describe ‘Basis for Qualified Opinion’ paragraph

Maximum marks 7

(b) Trade receivable

– Potential impairment of receivables is material to Group accounts (calculation)
– Account for as an adjusting event 
– Adjustment needed to operating profit and current assets
– Recommend additional procedures (1 mark each)
– Material misstatement if not adjusted and qualified opinion

Potential adjustments in aggregate (marks can be awarded either in answer to (a) or (b))

– In aggregate, the two matters almost wipe out profit before tax
– Could be considered to be pervasive to financial statements leading to adverse opinion
– Must be discussed with those charged with governance

Maximum marks 7

(c) Chairman’s statement

– Auditor required to read other information which includes the draft chairman’s statement
– Other information should be consistent with financial statements
– Inconsistencies undermine the audit opinion
– The draft chairman’s statement contains a misstatement of fact regarding revenue
– Review audit work performed on revenue
– Request draft chairman’s statement to be amended
– If inconsistency remains, the auditor’s report to include an Other Matter paragraph 
– Consider speaking at meeting of shareholders regarding the inconsistency

Maximum marks 6