Question

Akash in a senior audit manager of an audit firm based in Nadi. As Christmas is approaching he wants to go on leave and he is finalizing his audits for the year ended 30 June 2017. While he was working he came across these material and independent scenarios: 1) Wishbone Ltd, uses the last-in first-out inventory valuation method for its closing inventory, which is one of the most significant items found in its statement of financial position. The difference between first-in first-out and last-in-first-out has a material effect on the closing inventory balance. 2) Vision Group is a parent company with a number of wholly owned subsidiaries. One of these, Courts Fiji Ltd, is a self-sustaining foreign subsidiary with manufacturing and distribution facilities throughout the Pacific. While the Vision group prepared its financials for the year ended 30 June 2017 the accounts included all the subsidiaries except Courts Fiji Ltd which was attached separately. The Financials included a note stating that the senior executives believe it would be misleading to consolidate Courts Fiji Ltd due to its unique and different operations from all other subsidiaries within the vision group. The note also shows details of the intra-group transactions. 3) Pleasant Beverages Ltd has the following audit problems: • The company did not update the listing for the changes in shareholding of the company • The director’s minutes were not prepared for the current year • No annual general meeting (AGM) was held last year • There was no written consent from the directors to act • The company did not even justify the reason for not keeping proper records and holding the AGM

Required : For each scenario discuss the audit issues to be considered and what impact these issue would this have on the audit opinion. You may also justify the answer using relevant legislation such as the Corporations Act and relevant auditing standards.

Answer 1

Followings are the Audit issues for different situation:

1) In this scenario Wishbone ltd uses LIFO method for valuation of inventory which is one of the best method for valuation of inventory.In this case inventory is a major item of financial statement and have major impact on financial statement.

However since stated in this problem that the Wishbone ltd uses LIFO method for inventory valuation and not changes the method of valuation for inventory.The audit issues would have been arise if there are changes in method of valuation that is not the problem here. As per GAAP and AS-2 following any method of valuation for inventory are appropriate as it reflect true and fare value of Financial Statement. It imposes some restriction only where methods of valuation are need to be changed that is not the case here.

Hence the auditor shoud only emphasise the matter paragraph.

2) As per AS-21 and Ind AS-27 every holding company should consolidate its financial statement of all subsidiary company incuding foreign subsidiary co. In the present problem Vision Group have prepared its financial statement incuding all subsidiary except Courts Fiji Ltd which is a foreign subsidiary company.

Vision Grooup parent should have included in its financial statement Courts Fiji ltd statement also, but it not considered this which is violation of AS-21 and Ind AS-27 as line by line consolidation.

Therefore Mr Akash senior audit manager would qualify the audit report.