(b) (i) Explain matters to be considered in forming audit opinion
Generally 1 mark for each point explained:
– ISAs require auditor to understand management’s reason for not adjusting misstatements
– ISAs require auditor to communicate impact of unadjusted misstatement on opinion
Share-based payment:
– Materiality assessment including appropriate calculation
– Fall in share price not valid reason for not recognising expense and credit to equity
– Material misstatement due to breach of financial reporting standards, encourage management
to make necessary adjustment

Provision:
– Materiality assessment including appropriate calculation
– Provision recognised too early, obligating event when closure announced
– Material misstatement due to breach of financial reporting standards, encourage management to make necessary adjustment
– Consider if any additional information to explain recognition of provision, e.g. an announcement before the year end which auditor unaware of
– In the absence of further information material misstatement exists due to breach of financial reporting standards, encourage management to make necessary adjustment

Inventory provision
– Materiality assessment including appropriate calculation
– Discussion of difference between clearly trivial, immaterial and material items
– Misstatement is a matter of judgement rather than a matter of fact
– Management should still be encouraged to make adjustment but no impact on audit opinion if not done
Maximum marks 9

(ii) Impact on auditor’s report
Generally up to 1 mark per point explained:
– Determination of aggregate impact of adjustments and combined materiality
– Material misstatement and modified opinion necessary
– Discussion and conclusion as to whether opinion should be qualified or adverse
– Basis for qualified opinion paragraph to include a description and quantification of the financial
effects of the misstatement

Maximum marks 4