ACC302 - Auditing and Assurance: Case Study Report, Semester 2

This case study analyzes four different scenarios related to audit and assurance, focusing on the application of various audit opinions. The assignment begins with an introduction to the concept of auditing and the four types of audit reports: unqualified, qualified, adverse, and disclaimer. Case 1 examines a wholesale company facing inventory valuation issues, leading to a qualified opinion due to the material impact of the valuation method change. Case 2 involves a non-profit organization that initially raised concerns regarding income documentation, but ultimately received an unqualified opinion after providing satisfactory clarifications. Case 3 presents a family-run business where the lack of disclosure of the limited lifespan of a gold mine resulted in an adverse opinion, highlighting a material misinterpretation. Finally, Case 4 describes a finance director's refusal to comply with a relevant standard, resulting in a disclaimer opinion due to the unavailability of required documentation. The conclusion summarizes the key findings, emphasizing the importance of accurate financial reporting and the role of auditors in ensuring the integrity of financial statements. The assignment is well-referenced with citations supporting the analysis of each case.

Running Head: AUDIT AND ASSURANCE
Audit and assurance
Name of the student
Name of the University
Author’s Note

1AUDIT AND ASSURANCE
Table of Contents
Introduction:...............................................................................................................................1
Discussion:.................................................................................................................................2
Case 1:........................................................................................................................................2
Case 2:........................................................................................................................................2
Case 3:........................................................................................................................................3
Case 4:........................................................................................................................................4
Conclusion..................................................................................................................................4
Referencing................................................................................................................................6

2AUDIT AND ASSURANCE
Introduction:
An audit is the study of the financial statements relating to a thorough investigation of
the facts and data mentioned in the financial reports and finally presenting the auditor’s view
on the financial statement through the auditor’s report. An auditor is responsible for
examining the financial statements with the documents and provide an auditor report to the
company. There are four types of auditor’s reports namely, unqualified opinion, qualified
opinion, adverse opinion and disclaimer (Christensen et al. 2016). The aim of this report is to
analyse the given cases on the material and independent matters and identify the type of
auditor report that should be issued to the case with a detailed justification.
Discussion:
Case 1:
Qualified opinion will be issued in this case.
A qualified report is a report where the auditor states that the financial statements or
data are not recorded as per the accounting standards and needs rectification or need some
rectification (Cordoş and Fülöp 2015). A qualified report has additional information in the
report stating what is misinterpreted or qualified.
In this case, Beast limited, a wholesale company is engaged in the valuation of
inventory. Inventory valuation was an essential part of the company’s balance sheet and any
misinterpretation with respect to this account would be a great offence. The company uses
last in first out valuation method regarding the valuation of ending inventories. A difference
is shown due to the change in the valuation method of the inventories. As this difference had
a material impact on the inventory balance, it is to be rectified. A qualified auditor report will
be issued stating the mismatch and the material influences that mismatch had on the balance

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of the account, followed by some suggestions and solution that the company should take in
order to get an unqualified or clean report.
Case 2:
Unqualified opinion or a clean report should be issued in this case.
A clean or unqualified report is the report that states that the financial statements are
correct and authenticated as per the auditor’s knowledge. This is the report that a company
expects to receive. This type of report states that the auditor is satisfied by the company’s
financial statement, and the financial statements are free of materialistic mistakes.
SecondBite foundation, a non-profit and non-reporting organisation, prepares its
financial report with the help of another accounting firm’s experts. While performing internal
auditing for the firm, it was realised that the firm has not provided enough documents to
support the recorded income. This could mean that the company was engaged in some
fraudulence practices. However, after being cross-examined, the company provided a
satisfactory clarification that all the incomes were correctly accounted for or recorded. Hence,
the company was able to clear the allegation or doubts magnificently (Christensen et al.
2016). Therefore, a qualified report would be issued stating that the organisation is in proper
compliance with the standards and laws that are to be followed.
Case 3:
Adverse opinion or adverse audit report is to be issued in this case.
An adverse report is issued when the auditor is highly dissatisfied with the financial
statements because of the high level of misinterpretation. No company wishes to receive such
a type of report, as this would reduce the trust of the stakeholders of the company. This type
of report questions the integrity with regards to the financial statements of the company. This

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type of report states that there is an unethical practice adopted while the preparation of the
financial statements (Czerney et al. 2019).
Golddiggers pty ltd, a family run business, represented by Mr Smith and his sister Ms
Smith, operated in a small goldmine. Ms Smith notices that the mining present in the gold
currently would expire within 12 to 17 months. She also stated that the company would close
the business after extracting the gold. Though Ms Smith could provide proper documents
stating the amount of gold in the vein, she failed to mention anything in the financial
statements. This led to a breach of law. Hence, not presenting documents in the financial
statements is a highly materialistic misinterpretation that the stakeholder of the company
should know (Banimahd et al. 2014). Therefore, an adverse opinion report is to be issued
stating the misinterpretation that the company has done.
Case 4:
Disclaimer opinion report should be issued in this case.
An auditor issue this type of report when there is a lack of information or an
inaccurate document is provided to the auditor. When the company fails to satisfy the auditor
with relevant information that is required to take a decision on the authentication of the
financial statement (Kachelmeier et al. 2017), in these cases, the auditor is not sure about the
type of report that should be issued and hence a disclaimer is provided stating the lack of
official papers available or provided to issue any report.
Ms Pit, a finance director in the Main Insurance company, a reporting entity, refuses
to adapt AASB124/IAS 24. It is a relevant standard, which is concerned with the party
disclosure in the financial statements to provide transparency to its stakeholder. Ms Pit
provides the auditor with falsified documents and satisfies the auditor that the financial
statement is materially correct. Later, after finding out the misinterpretation, a modified

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report is issued stating the non-compliance and lack of documents available to the auditor to
issue any type of report (Paananen 2016). Hence, the auditor issues a report disclaiming the
unavailability of the documents and denial of an important standard issued by the finance
director. There were four organisation with some misstatement and misinterpretation of
which some were materially correct and need to be qualified and other were materially
incorrect or irrelevant to the auditor.
Conclusion:
From the above discussion, it can be concluded that there can be four types of audit
report that can be issued to a company. These report depends on the auditors view on the
company’s financial statements. There were four cases of four different type in the above
discussion. The cases were carefully analysed and an auditor report was issued in each
situation.

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Referencing:
Banimahd, B., HASAS, Y.Y. and Yazdanian, N., 2014. Earnings management and audit
opinion: evidences of private audit firms.
Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K., 2016. Understanding audit
quality: Insights from audit professionals and investors. Contemporary Accounting
Research, 33(4), pp.1648-1684.
Cordoş, G.S. and Fülöp, M.T., 2015. Understanding audit reporting changes: introduction of
Key Audit Matters. Accounting & Management Information Systems/Contabilitate si
Informatica de Gestiune, 14(1).
Cordoş, G.S. and Fülöp, M.T., 2015. Understanding audit reporting changes: introduction of
Key Audit Matters. Accounting & Management Information Systems/Contabilitate si
Informatica de Gestiune, 14(1).
Czerney, K., Schmidt, J.J. and Thompson, A.M., 2019. Do investors respond to explanatory
language included in unqualified audit reports?. Contemporary Accounting Research, 36(1),
pp.198-229.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2017. The disclaimer effect of disclosing
critical audit matters in the auditor’s report. Working paper.
Paananen, M., 2016. Modified audit reports in the case of joint municipal authorities:
empirical evidence from Finland. International Journal of Auditing, 20(2), pp.149-157.
Sultana, N., Singh, H. and Van der Zahn, J.L.M., 2015. Audit committee characteristics and
audit report lag. International Journal of Auditing, 19(2), pp.72-87.