Accounting for Management

Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of the Student
Name of the University
Author Note

1AUDIT AND ASSURANCE
Table of Contents
Answer to case 1........................................................................................................................2
Answer to case 2........................................................................................................................2
Answer to case 3........................................................................................................................3
Answer to case 4........................................................................................................................4
Reference....................................................................................................................................5

2AUDIT AND ASSURANCE
Answer to case 1
In the case of Beast Ltd which is in the business of wholesaling of the goods, there
should be issue of qualified audit report by the auditor. The auditor will issue such type of
audit report since there are material misstatements in the report but they are not pervasive.
The inventory recorded by Breast Ltd has been done by using the Last-in-first-out method
thus doing breach of the standard AASB102. The accounting standard AASB102 is applied to
the inventory accounting system (Aasb.gov.au 2020). Paragraph 25 of this accounting
standard has been used which states that the inventory cost except that of the items stated in
paragraph number 23 will be calculated with either FIFO ( first-in-first-out) method or
weighted average cost method. It also states that this costing method will be used by every
entity having inventories with similar use and nature. If the inventories do not have similar
use and nature, other type of cost method will be applied. Since Beast Ltd is using LIFO (last
in first out) it leads to the breach or violation of the accounting standard stated above. Since
there is material misstatement which is taken into account so it leads to disagreement with the
management. In case of the time period in which the cost rises significantly, LIFO (Last-in-
first-out) method will have an impact on balance sheet by stating less inventory cost and also
impact the income statement by stating higher COGS ( cost of goods sold) as compared with
the FIFO (First-in-first-out) system (Bragg and Bragg 2018)
Answer to case 2
Unqualified audit report has to be issued by the auditor in the case of Second Bite
Foundation which is non-reporting organisation along with being non-for-profit entity. This
type of audit report is being issued since the auditor is well satisfied that the income recorded
by the organisation is accounted for in an accurate manner in the audit report. There is
unqualified opinion which has been obtained from the auditor and presented in the report as it

3AUDIT AND ASSURANCE
was material and pervasive. There is not any of the material misstatement which is there in
the report which the auditor found out. Paragraph 40 of SAC 1 reporting entity is defined as
an entity with reference to it being able to expect the existence of all the users who depend
upon financial reports to gather the information to ease the purpose of decision making
regarding how to allocate the limited resources (Aasb.gov.au 2020). In case of reporting
entity, various users like shareholders, lenders, employees, members of the entity, creditors
and potential investors depend on general purpose financial statements. In case of Second
Bite Foundation being a non-reporting entity, no user is dependent upon general purpose
financial statements. It may need to prepare SPFR (Special Purpose Financial Report) which
causes only limited disclosure of Australian Accounting Standards. All of the Australian
Accounting Standards need not be applied while preparing Second Bite Foundation’s
financial reports since it is a non-reporting entity. However in this case the auditor has certain
limitation like he is unable to gather certain information whether the information has been
received in a correct way or through unfair means like theft. In the case of Second Bite
Foundation AASB 1058 is applied since it is non-for-profit entity (Aasb.gov.au 2020). AASB
1058 is applicable for such transactions in which consideration in order to do acquirement of
any asset is lower than FV (fair value) to help the non-profit organisation to achieve its goals
and also in case of volunteer service receipt.
Answer to case 3
In case of Golddiggers Pty Ltd which is the business related to goldmine operation,
qualified audit report will be issued by the auditor since it fails to do the required disclosure
of all the information. There has been omission of necessary information in the report which
is issued. The auditor’s report will include a particular section with the heading written as
material uncertainty which is associated with the concept of going concern. Golddiggers Pty
Ltd decided to suspend the business activities as soon as they will finish the process of gold

4AUDIT AND ASSURANCE
extraction since the vein from which they do the extraction would last for a limited time
which is maximum of seventeen months. The company in this regard violates international
auditing standard 570 due to the fact they are not following and in fact violating the concept
of going concern of an entity (Ifac.org 2020). According to this particular concept the
preparation of every financial statement is done with respect to the assumption which states
that the operations of the organisation will go on for unlimited time in the future (Accounting
for Management 2020). Thus it is found that in the case of Golddiggers Pty Ltd regarding its
decision of shutting the business activities, it does breach of the international auditing
standard 570 by not doing the disclosure of this case in the required financial reports.
Answer to case 4
In case of Main Insurance the auditor will issue unqualified audit report. This sort of
audit report will be issued by the auditor since the audit report has correct material statements
in every regard and the auditor is well satisfied with this (Smallbusiness.chron.com 2020).
Despite the fact that the company did not follow AASB 124/ IAS 24 the clean report or
unqualified report would be issued as the report gives true picture of the organisation. The
management does not follow AASB 124/IAS 24 which mentions about related party
disclosures. The entity of Main Insurance does not want disclosure of certain information to
be done in front of the public and wants to retain it only with the concerned entity. However
the auditor advises that the management must opt for this standard which is AASB 124/IAS
24 in the near future otherwise they will be issuing the qualified audit report for not following
the same. This standard is applicable to all the entities which falls in the category of reporting
entity and need to do preparation of financial statements according to Part 2M.3 related to
Corporation Act. This standard is applicable for GPFS of reporting entities along with all the
financial statements which turn out as or are considered as GPFS (Aasb.gov.au 2020).

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Reference
Aasb.gov.au. 2020. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 10 Jan.
2020].
Aasb.gov.au. 2020. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB124_12-09_COMPjun14_07-14.pdf
[Accessed 10 Jan. 2020].
Aasb.gov.au. 2020. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB1058_12-16.pdf [Accessed 10 Jan.
2020].
Aasb.gov.au. 2020. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/SAC1_8-90_2001V.pdf [Accessed 10 Jan.
2020].
Accounting for Management 2020. Going Concern Concept - Definition, Explanation
Examples and Importance | Accounting for Management. [online] Accounting for
Management. Available at: https://www.accountingformanagement.org/going-concern-
concept/ [Accessed 10 Jan. 2020].
Accounting for Management 2020. Going Concern Concept - Definition, Explanation
Examples and Importance | Accounting for Management. [online] Accounting for
Management. Available at: https://www.accountingformanagement.org/going-concern-
concept/ [Accessed 10 Jan. 2020].

6AUDIT AND ASSURANCE
Bragg, S. and Bragg, S. 2018. FIFO vs. LIFO accounting — AccountingTools. [online]
AccountingTools. Available at: https://www.accountingtools.com/articles/2017/5/13/fifo-vs-
lifo-accounting [Accessed 10 Jan. 2020].
Ifac.org. 2020. [online] Available at:
https://www.ifac.org/system/files/downloads/2008_Auditing_Handbook_A170_ISA_570.pdf
[Accessed 10 Jan. 2020].