ACC302: Assessment 3 - Audit and Assurance Case Study Report

This document presents a comprehensive case study analysis focusing on audit and assurance principles. It examines scenarios involving changes in accounting policies, internal control weaknesses in non-profit organizations, going concern issues, and non-compliance with related party disclosure standards. The analysis explores the appropriate audit opinions to be issued in each case, including adverse, qualified, and disclaimer of opinion, based on the materiality of misstatements, the impact on the financial statements, and adherence to relevant accounting standards like AASB 102, AASB 101, and AASB 124. The document also highlights the responsibilities of auditors and management in financial reporting, emphasizing the importance of transparency and compliance with accounting regulations. The cases delve into the implications of these issues on the financial reporting of different types of businesses like wholesale, non-profit, and companies involved in mining and insurance.

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

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AUDIT AND ASSURANCE
Table of Contents
Answer to Question 1.................................................................................................................2
Part A.....................................................................................................................................2
Part B......................................................................................................................................2
Answer to Question 2.................................................................................................................3
Part A.....................................................................................................................................3
Part B......................................................................................................................................3
Answer to Question 3.................................................................................................................4
Part A.....................................................................................................................................4
Part B......................................................................................................................................4
Answer to Question 4.................................................................................................................5
Part A.....................................................................................................................................5
Part B......................................................................................................................................5
Reference....................................................................................................................................6

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AUDIT AND ASSURANCE
Answer to Question 1
Part A
The case reveals the business of Beast Ltd which is engaged in Wholesale business
has changed its inventory valuation process from last in first out method to First in first out
method. This is a change in accounting policies and therefore the same needs to be reported.
The figure of inventory is material for a Wholesale business and therefore any misstatement
in the same needs to be considered by the auditor (Tsipouridou and Spathis 2014). The audit
manager of FairAudit in such a case would be issuing an adverse audit opinion considering
the materiality aspect of inventory which the change in the valuation method would bring into
the annual report.
Part B
The difference in the amount which would be created due to change in accounting
policy for measuring inventory would be impacting the financial position of the business. In
the first place as well, the application of Last in first out is not allowed under the provisions
of AASB 102 and it is further stated that it results in wrong valuation of inventory for the
business as the current costs of inventory are not reflected in the final value which is
portrayed (Omid 2015). Therefore, it can be said that the accounting team of Beast ltd has not
complied with relevant accounting standards and also not made necessary adjustments for the
change in the valuation technique for inventory which creates a material difference and
impacts the true and fair view of the business. Hence, it can be said that adverse report in
such a case is justified.

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AUDIT AND ASSURANCE
Answer to Question 2
Part A
The auditor in this case would be issuing a qualified opinion which would be a form
of modified opinion as the evidences which have been collected in the case are not material
enough. The business of SecondBite Foundation is a non-profit firm which does not have
proper internal control as well as accounts department. This is one of the reason that the
auditor needs to make sure that all income and expenses are properly accounted for in the
financial report. The audit manager of FairAudit would be issuing a modified report which is
because there is an uncertainty regarding the situation even though incomes are accurately
accounted in the books of accounts.
Part B
The provisions of Para 10 of AASB 1058 clearly require every non-profit
organization to recognize income for any additional carrying value over the assets of the
business (Aasb.gov.au. 2020). The business of SecondBite Foundation follows this
requirement appropriately but there is a lack of proper internal control in the business which
is a matter of concern. However, it is to be noted that SecondBite Foundation is a non-profit
entity and therefore, it does not have the obligation to report to external parties regarding
their financial performance. It is for these reasons that a qualified report is issued by an
auditor considering the uncertainty regarding the internal control of a business (Gaganis,
Pasiouras and Spathis 2013). In addition to this, the auditor also needs to include a separate
paragraph disclosing the reason for the uncertainty to occur in the first place.

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AUDIT AND ASSURANCE
Answer to Question 3
Part A
A qualified report is formulated by an auditor when there is some presence of material
misstatement in the financial reports or some restriction on the auditor regarding the process
of audit. In the case of Golddiggers Pty Ltd, the business is engaged in extracting gold from
mines and the senior officials of the business has made it clear that it would be closing the
mine in a matter of 13 to 17 months. Further, the annual report does not include such facts
which create a significant doubt on the going concern principle for the business and therefore
the auditor in such a case would be including a qualified report as information which would
have a material impact on the financial statement has been omitted (Vermeer, Raghunandan
and Forgione 2013).
Part B
The preparation of the financial statement is the responsibility of the management of
the company and therefore as Para 25 of AASB 101, going concern principle needs to be
disclosed in the financial statements (Aasb.gov.au. 2020). Even if certain situations pose
doubts towards the going concern principle needs to be reflected in the financial statement of
the business. The case of Golddiggers Pty Ltd shows a similar situation where there are signs
that there is a doubt on the going concern principle for a business but the same has not been
included in the books of accounts (Abad, Sánchez‐Ballesta and Yagüe 2017). Therefore, in
such a case, the audit manager would be issuing a qualified report and also be including an
emphasis of matter paragraph covering the doubt on going concern principle for the business.

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AUDIT AND ASSURANCE
Answer to Question 4
Part A
The case of Main Insurance reveals that the senior management does not wants to
comply with the provisions of AASB 124/IAS 24 Related Party Disclosures. The reason for
noon-disclosure is due to fact that senior manager does not want to reveal family information
to public. The auditor had given a modified report in previous and still no changes has been
made and therefore, the auditor would be issuing a disclaimer of opinion to the business due
to non-compliance with relevant auditing standard.
Part B
In a financial statement, every transactions needs to be disclosed for the purpose of
appropriate presentation of the financial position of the business even if it’s a parent and
subsidiary relationship based transactions. The case of Main Insurance is clearly in breach of
AASB 124, Para 13. The reason for issuing a disclaimer of opinion is because the auditor had
issued a modified report previous year due to the same concern but still no changes have been
made in the reporting framework. The decision of the managers of Main Insurance regarding
not to disclose information can also be considered as a restriction on the scope of audit and
therefore a disclaimer of opinion is justified in this case.

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AUDIT AND ASSURANCE
Reference
Aasb.gov.au. (2020). [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB1058_12-16.pdf [Accessed 23 Jan.
2020].
Aasb.gov.au. (2020). [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB124_07-15.pdf [Accessed 23 Jan.
2020].
Abad, D., Sánchez‐Ballesta, J.P. and Yagüe, J., 2017. Audit opinions and information
asymmetry in the stock market. Accounting & finance, 57(2), pp.565-595.
Gaganis, C., Pasiouras, F. and Spathis, C., 2013. Regulations and audit opinions: Evidence
from EU banking institutions. Computational Economics, 41(3), pp.387-405.
Omid, A.M., 2015. Qualified audit opinion, accounting earnings management and real
earnings management: Evidence from Iran. Asian Economic and Financial Review, 5(1),
pp.46-57.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Taylor & Francis.
Vermeer, T.E., Raghunandan, K. and Forgione, D.A., 2013. Going-concern modified audit
opinions for non-profit organizations. Journal of Public Budgeting, Accounting & Financial
Management, 25(1), p.113.