(b)  In general up to 1 mark for each relevant and adequate point of explanation. ½ mark should be awarded for relevant points which are either too brief or poorly explained.

(1)  Depreciation
   –  Error in isolation immaterial (max ½ mark)
   –  Error also immaterial when projected to total population
   –  Client should be requested to amend the error
   –  Auditor should investigate revised non-current asset register
   –  If management refuses, there is still no material misstatement
    –  Unmodified opinion
    Maximum marks  5

(2)  Loan
    –  Related party transaction
    –  Material by nature
   –  Requires full disclosure in the financial statements
   –  Failure to adjust leads to a material but not pervasive misstatement
    –  Qualified opinion
    Maximum marks  5

(3)  Provision
   –  Calculation of potential provision values and value of adjustment
   –  Adjustment is material to statement of profit or loss
   –  Matter of judgement – must be reasoned and supported with evidence
   –  Potential for earnings management
   –  Request management to reinstate full provision
   –  Failure to adjust leads to a material but not pervasive misstatement
    –  Qualified opinion
    Maximum marks  5
    –––
    Maximum  20