Required: For each of the above events, state the type of audit report that you should issue or state the appropriate action (if any) that the auditor would require of the client in order to issue an unqualified audit opinion. Give reasons.
While completing your audit work for the 30 June 2022 audit of Bexca Ltd, you become aware of the following material matters:
(i) On 5 July, Blue Pty Ltd, a major customer of Bexca Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Bexca Ltd as at balance date, management of Bexca Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2022 financial report. However, they are prepared to disclose this information as a note to the financial report.
- (ii) One of Bexca’ major customers, Leisure Pty Ltd, suffered a fire on 20 July. Since Leisure Pty Ltd was uninsured, it is unlikely that their accounts receivable balance will be paid.
(iii) On 25 July, a well-known financial planner advised his clients not to invest in Bexca due to poor long-term growth prospects. The market price for Bexca’s shares subsequently declined by 40%.
(iv) A note to the financial report of Bexca Ltd refers to an agreement to sell its major subsidiary, Cleanskins Pty Ltd, to a rival 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 Cleanskins 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 Cleanskins 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 of the above events, state the type of audit report that you should issue or state the appropriate action (if any) that the auditor would require of the client in order to issue an unqualified audit opinion. Give reasons.
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