You are the audit manager of FairAudit and you are finalising the audits for 30 June 2020. The following independent and material matters have come to your attention:
1. Your client Beast Ltd is a company engaged in wholesaling goods. Beast Ltd uses last-in first-out in respect of valuation of ending inventories, which is one of the most significant balance sheet accounts for this company. The difference between first-in first-out and last-in first-out has a material effect on the ending inventory balance.
2. SecondBite Foundation is a non-for-profit organisation and a non-reporting entity. In the last three years, you have been performing their audits in accordance with its constitution. The financial reports are prepared by another accounting firm on behalf of SecondBite’s board of directors, because SecondBite does not have internal accounting expert to perform this function. During your review of the internal control structure, you acknowledged that SecondBite did not have adequate controls over the collection of income to enable you to be satisfied that all income received was recorded. However, you have been satisfied that the organisation has accurately accounted for all income recorded.
3. Golddiggers Pty Ltd, is a family run business, operating a small goldmine. The board is represented by Mr Smith and his sister, Ms Smith, who are also the predominant shareholders. In the final audit meeting, Ms Smith has told you she suspects that the vein they are presently mining will last 13 months at the least to 17 months at the most. She has also noted that after they extract the gold they will close the business, let the license expire and retire to Goldfields-Esperance. Ms Smith then showed you a land-surveyor’s report confirming her statement regarding the amount of gold in the vein. This information has not been disclosed in the financial report.
4. Main Insurance is a reporting entity. Ms Pit is the finance director and refuses to adopt AASB 124/IAS 24 – Related Party Disclosures because the standard ‘requires information to be disclosed to the public that should stay familiar only to the concerned parties’. This was Ms Pit’s point of view in the previous years, which resulted in your issuing a modified auditor’s report. Apart from the non-compliance with AASB 124/IAS 24, you have been satisfied that the current financial report is materially correct in all regards.
You are required to:
A) Identify the type of auditor’s report to be issued for each of the above situations.
B) Justify your answer by discussing the relevant audit issues you have considered in forming your opinion