While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: 1. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the wine to continue to develop in the bottle. On 20 July, Greenfield Ltd applied for a patent for the cap, only to discover that a competitor had lodged a similar application on 15 June. The granting of Greenfield Ltd's patent application is now in serious doubt. Management do not believe any change to the financial report is required. IV. A note to the financial report of Greenflied Ltd refers to an agreement to sell its major subsidiary, Bursa Valley Pty Ltd, to a rival wine company. This agreement was finalised the day before the financial report was to be signed and the sale is to take place a month after the audit report is to be signed. You have verified this transaction. However, when reviewing the 'Chairman's Review', which is to be included in the annual report that contains the audited financial report, you see that: a) plans for expanding Bursa Valley Pty Ltd's facilities are outlined. b) the additional revenue to be generated over the next ten years as a result of this expansion is tabulated; and c) there is no reference to the sale of Bursa Valley Pty Ltd. Management believe that it is too late to make any changes to the annual report, as it is ready to send to the printers, as soon as the audit report is signed. Required: For each independent situation, state the type of audit report that you should issue and give reasons for your answer.

While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: 1. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the wine to continue to develop in the bottle. On 20 July, Greenfield Ltd applied for a patent for the cap, only to discover that a competitor had lodged a similar application on 15 June. The granting of Greenfield Ltd's patent application is now in serious doubt. Management do not believe any change to the financial report is required. IV. A note to the financial report of Greenflied Ltd refers to an agreement to sell its major subsidiary, Bursa Valley Pty Ltd, to a rival wine company. This agreement was finalised the day before the financial report was to be signed and the sale is to take place a month after the audit report is to be signed. You have verified this transaction. However, when reviewing the 'Chairman's Review', which is to be included in the annual report that contains the audited financial report, you see that: a) plans for expanding Bursa Valley Pty Ltd's facilities are outlined. b) the additional revenue to be generated over the next ten years as a result of this expansion is tabulated; and c) there is no reference to the sale of Bursa Valley Pty Ltd. Management believe that it is too late to make any changes to the annual report, as it is ready to send to the printers, as soon as the audit report is signed. Required: For each independent situation, state the type of audit report that you should issue and give reasons for your answer.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Activities Required In Completing A Quality Audit

Section: Chapter Questions

Problem 87RSCQ

See similar textbooks