Question

You are the audit manager at Deloitte and you are finalising the audits for 30 June 2021. The following independent and material matters have come to your attention:

1. WorldCom.Social Ltd provides social housing to approximately 1500 tenants at below normal market rents. WorldCom.Social is a reporting entity under the Corporations Act. During the year, there has been a review of the basis for calculating the lives of the houses owned by the organisation. Previously, these houses were assessed to have a useful life of 30 years, but this has now been changed to 50 years. During your audit work, you reviewed the WorldCom.Social Ltd asset management policy which only plans for maintaining and upgrading properties up to 30 years old. You also found that, during the year, WorldCom.Social Ltd demolished a house that it built in 1989.

2. Enron Ltd is a holding company with a few wholly owned subsidiaries. One of these, Kingsemi Co., Ltd, is a self-sustaining foreign subsidiary with manufacturing and distribution facilities throughout SouthEast Asia. The group accounts of Enron and its subsidiaries consist of the consolidated statements of Enron and its subsidiaries and exclude those of Kingsemi Co., which are attached separately. The consolidated statements include a note stating that the directors believe it is misleading to consolidate Kingsemi Co. because its operations are very different from those of the rest of the group and are carried out under significantly different conditions. The note includes details of intercompany balances and transactions.

3. Newmont Goldcorp Pty Ltd, is a family run business, operating a small goldmine. The board is represented by Mr. Cristiano Ronaldo and his brother, Mr. Hugo Ronaldo, who are also the predominant shareholders. In the final audit meeting, Mr. Hugo has told you he suspects that the vein they are presently mining will last 13 months at the least to 17 months at the most. He has also noted that after they extract the gold, they will close the business, let the license expire and retire to Madeira. Mr. Hugo then showed you a land-surveyor’s report confirming his statement regarding the amount of gold in the vein. This information has not been disclosed in the financial report.

4. CARE Australia is a non-for-profit organisation and a non-reporting entity. In the last three years, you have been performing their audits in accordance with its constitution. The financial reports are prepared by another accounting firm on behalf of CARE Australia’s board of directors, because CARE Australia does not have internal accounting expert to perform this function. During your review of the internal control structure, you acknowledged that CARE Australia did not have adequate controls over the collection of income to enable you to be satisfied that all income received was recorded. However, you have been satisfied that the organisation has accurately accounted for all income recorded.

You are required to:

A) Identify the type of auditor’s report to be issued for each of the above situations. (4 x 2.5 marks = 10 marks)

B) Justify your answer by discussing the relevant audit issues you have considered in forming your opinion. (4 x 2.5 marks = 10 marks)

Answer 1

Answers

A.

1. In the case of Worldcom.social ltd, it is a Qualified openion

2. In the case of Enrorn Ltd , it is an adverse openion

3. For the situation of Newmont Goldcrop Pty Ltd. it is Emphasis on matter parangraph (EMP) openion

4. In the case of Care Australia it is an Unqualified Opinion

B.

Now we can go through the justification that is asked in the question part B

1. In the case of the Worldcom.social ltd , the company changed the life of assets to 50 years instead of 30 years, thus as per the audit it ascertains there any misstatement, the effect of which is significant but extensive therefore, the qualified opinion is stated.

2. In the case of Enron Ltd it is a holding company of Kingsemi Comoany Ltd. Here a foreign subsidiary and holding company made a consolidated reports except including the Kingsemi Comoany Ltd. On the basis of the evidence obtained in the footnote, the auditor may analyse thet the impact of the material misstatement is material and extensive

3.Here the Newmont Goldcrop Pty Ltd. didnt stated that the company is going to shut down after 17 months and the registration will be cancelled there after. on the basis of the facts the company may be stated it earlier but it should be highlighted among the stakeholders by the various statements,thus the audditor should use Emphasis on matter parangraph (EMP) openion.

4. CARE Australia is a non-for-profit organisation and a non-reporting entity. Here the auditor is satisfied on the reports. The auditor analyse that the informations are sufficient and are prepared correctly, therefore auditors have to give an unqualified opinion on the report.