Locky Privetra is considering investing in Sea Lounge Ltd (SLL), a large cruise ship company. Locky has reviewed SLLL's 2020 audited financial report, which shows a net profit of $700 000 and a net asset position of $3 million. The auditor's report is unmodified, stating that in the auditor's opinion, the financial report gives a true and fair view of the entity's financial performance and financial position. As a result, Locky is now confident about her proposed investment in SLL, as she believes that the auditor's report provides absolute assurance about the accuracy of the financial report, including the healthy profit and net asset figures, and there is no chance of the company going bankrupt. Further, while she is aware of the management frauds that have occurred in some companies in recent years, she is comforted by the fact that she believes that the unmodified auditor's report means that no fraud has occurred within SLL. Required: Explain the situation and implications of the reasonable or absolute assurance and unmodified Auditor’s opinion. Do you think this company should achieve absolute assurance and unmodified Auditor’s opinion?
Locky Privetra is considering investing in Sea Lounge Ltd (SLL), a large cruise ship company. Locky has reviewed SLLL's 2020 audited financial report, which shows a net profit of $700 000 and a net asset position of $3 million. The auditor's report is unmodified, stating that in the auditor's opinion, the financial report gives a true and fair view of the entity's financial performance and financial position. As a result, Locky is now confident about her proposed investment in SLL, as she believes that the auditor's report provides absolute assurance about the accuracy of the financial report, including the healthy profit and net asset figures, and there is no chance of the company going bankrupt. Further, while she is aware of the management frauds that have occurred in some companies in recent years, she is comforted by the fact that she believes that the unmodified auditor's report means that no fraud has occurred within SLL.
Required:
Explain the situation and implications of the reasonable or absolute assurance and unmodified Auditor’s opinion. Do you think this company should achieve absolute assurance and unmodified Auditor’s opinion?
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