Question

Question 4: (25 marks)

1. There are different types of auditor opinions, one of which they must express in their audit report once they will complete their audit process. List and briefly discuss the different types of auditor opinions.                                                                                                                        

(15 marks)

2. Identify that under following cases what types of opinions can be expressed by the auditor? Support your answer with discussion.                                                                        

                                                                                                                                    (10 marks)

Case A

The auditor noticed that inventory of Alpha Company faces a write-down due to obsolescence. However, the company refuses to write down the inventory. Thus, only the inventory and cost of goods sold accounts are wrong

Case B

The auditor is looking to review the company’s minutes book, which contains important information regarding the board of directors meeting and the audit committee. ABC Company does not permit the auditor to review the minutes book. As a result, the auditor is unable to access the minutes book, a majority of the company’s accounts cannot be verified

Answer 1

Q4.(A)

-Auditors opinion can be of 2 types-

1. Unmodified Opnion-

- The Auditor shall express an unmodified opinion, when the auditor concludes that the Financial statements are prepared , in all material respects , in accordance with the applicable FRF. This is also calles clean opinion

2. Modified Opinion-

-The Auditor shall modify the opinion in the Auditor's report if the auditor:-

• Concludes that based on the audit evidences obtained, the FS as a whole are not free form material misstataement.
• is unable to obtain sufficient and appropriate audit evidenc to conclude that the FS as a whole are free from material misstatement.

-Modified Opnion can be of 3 types-

(2.a) Qualified opinion-

It is issued under following circumstances:

• Financial statements are materially misstated which in the auditor’s judgments are not pervasive.
• Auditor is unable to obtain Sufficient and appropriate audit evidence which in the auditor judgment are not pervasive.

(2.b)Adverse Opinion-

  It is issued when financial statements are materially misstated which in the auditor’s judgments is having pervasive effect.

(2.c) Disclaimer of Opinion-

• when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and
• the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

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(B)

Case A

The auditor noticed that inventory of Alpha Company faces a write-down due to obsolescence. However, the company refuses to write down the inventory. Thus, only the inventory and cost of goods sold accounts are wrong.

Opinion To be given- Qualified Opnion

Reason-Here the auditor has Sufficient and appropriate audit evidence that the Financial statement are misstated by not writing down the inventory. The misstatement are material but Not pervasive, because it affects only the COGS nad inventory. The misstatement doesnot affect the FS as a whole. As a layman term we can say that All the FS except the COGS and inventory are correct . Hence the auditor can give qualified opinion and should mention in the "BASIS FOR QUALIFIED OPINION' paragraph in the audit report the whole issue regarding the inventory valuation.

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Case B

The auditor is looking to review the company’s minutes book, which contains important information regarding the board of directors meeting and the audit committee. ABC Company does not permit the auditor to review the minutes book. As a result, the auditor is unable to access the minutes book, a majority of the company’s accounts cannot be verified

Opinion To be given- Disclaim opinion.

Reason-The auditor is unable to obtain sufficient and appropriate audit evidence to form his opinion,because he is restrcted to access the majority accounts of the company.

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