Question

During the course of the audit the auditor noted that the company has switched its costing of inventory method and method of depreciation that had been traditionally used for many years. The switch did not materially impact the current year financial statements. The auditor also noted that the company had become the subject of a major takeover bid by a rival. This information was not disclosed in the financial statements but could be of concern to shareholders in understanding the future asset values of the company. Given the above findings the audit is best likely to issue a:

Select one:

a. Unqualified auditor opinion with a matter-of-emphasis paragraph and other matters paragraph.

b. Unqualified auditor opinion with a matter-of-emphasis paragraph only.

c. Adverse opinion.

d. Unqualified auditor opinion.

Answer 1

Answer)

A company when changes the method of inventory or depreciation results to change in accounting policies which requires no retrospective adjustments.

Further the company has became a subject to takeover by the firm, that is important for taking economic decision of the interested parties. This should be mentioned in the notes to accounts.

So the auditor should issue an unqualified auditor opinion with emphasis of matter paragraph to show the importance of takeover news. Matter of emphasis paragraph highlights important news that may be relevant to the shareholders.

So the answer is option (b)