Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

You are the audit manager on the audit of Hindus Limited. The audit senior has completed the audit of the company for the year ended Ashad 31, 2065 and submitted a draft audit report for your review. The following paragraphs have been extracted from the draft audit report:
‘We conducted our audit in accordance with the auditing standards as applicable in Nepal. These standards require that we plan and perform the audit to obtain………. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:
We did not observe the counting of the physical inventories as of Ashad 31, 2065, since that date was prior to the time we were initially engaged as auditors of the Company. Owing to the nature of the Company’s records, we were unable to satisfy ourselves as to the quantities of inventory other audit procedures.
In our opinion and to the best of our information and according to the explanations given to us, the balance sheet ——————–so required and respectively give a true and fair view of the view of the state of the Company’s affairs as at Ashad 31, 2065 and of the loss, its cash flows and changes in equity for the year then ended.
The Company’s liabilities exceed its assets at Ashad 31, 2065 creating an adverse situation which management believes is reversible over the coming twelve months. Management further believes that the Company is capable of continuing in operation for twelve months from the date of this report”
Identify the shortcomings in the above paragraphs extracted from the audit report.

Answer
There are three issues related to draft report prepared the audit senior, as given below:
1. Limitation on the audit scope shall have been added as except as noted below we conducted our audit in accordance ….,
2. Opinion paragraph states true and fair view without mentioning the qualification of limitation on audit scope, and
3. The emphasis of matter has not been properly added. It should be written as

follows:
Except as discussed in the following paragraph, we conducted our audit in accordance with Nepal Standards on Auditing or relevant practices. Those Standards or relevant practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
“We did not observe the counting of the physical inventories as of Ashad 31, 2065, since that date was prior to the time we were initially engaged as auditors for the Company. Owing to the nature of the Company’s records, we were unable to satisfy ourselves as to inventory quantities other audit procedures.”
In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to physical inventory quantities, the financial statements give a true and fair view of (or „are presented fairly, in all material respects,‟) the financial position of Hindus Ltd as of Ashad 31, 2065, and of the results of its operations and its cash flows for the year then ended in accordance with Nepal Accounting Standards or relevant practices and comply with Company Act, 2063.
Without qualifying our opinion, we draw attention to Note X to the financial statements, we further state that the Company‟s liabilities exceed its assets at Ashad 31, 2065 creating an adverse situation which management believes is reversible over the coming twelve months. Management further believes that the Company is capable of continuing in operation for twelve months from the date of this report.”



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