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You are appointed audit senior of Banga & Co for the audit of Cari Appa, a manufacturer of men's coveralls with its year end of 31 July 2019. The following are some of the notes in respect of independent scenarios A, B, and C: A. 1) A planning meeting between Banga and Cari Appa revealed profit before tax of $2.4m and total assets of $16m, as per the draft financial statements. 2) You have been requested to audit the material balance of receivables, requiring a positive receivables circularisation to be done. 3) The finance director of Cari Appa informed you that the company was closing an assembly site resulting in redundancy of employees. A redundancy provision of $100,000 is included in the draft financial statements. 4) Three months later, your team's audit fieldwork examines the audit procedures in respect of the redundancy provision. The team has calculated that the necessary provision should amount to $300,000. The finance director is not willing to adjust the draft financial statements. B. Cari Appa changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. C. Banga & Co includes a separate paragraph in an otherwise unqualified report to emphasize that Cari Appa had significant transactions with related parties. Required: 1) Discuss the issue in scenario A and describe the impact on the auditor's report, if any, should this issue remain unresolved. 2) Discuss the proper reporting option in scenario B. 3) Discuss the inclusion of this separate paragraph in scenario C.

You are appointed audit senior of Banga & Co for the audit of Cari Appa, a manufacturer of men's coveralls with its year end of 31 July 2019. The following are some of the notes in respect of independent scenarios A, B, and C: A. 1) A planning meeting between Banga and Cari Appa revealed profit before tax of $2.4m and total assets of $16m, as per the draft financial statements. 2) You have been requested to audit the material balance of receivables, requiring a positive receivables circularisation to be done. 3) The finance director of Cari Appa informed you that the company was closing an assembly site resulting in redundancy of employees. A redundancy provision of $100,000 is included in the draft financial statements. 4) Three months later, your team's audit fieldwork examines the audit procedures in respect of the redundancy provision. The team has calculated that the necessary provision should amount to $300,000. The finance director is not willing to adjust the draft financial statements. B. Cari Appa changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. C. Banga & Co includes a separate paragraph in an otherwise unqualified report to emphasize that Cari Appa had significant transactions with related parties. Required: 1) Discuss the issue in scenario A and describe the impact on the auditor's report, if any, should this issue remain unresolved. 2) Discuss the proper reporting option in scenario B. 3) Discuss the inclusion of this separate paragraph in scenario C.

Auditing: A Risk Based-Approach (MindTap Course List)
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Completing A Quality Audit
Section: Chapter Questions
Problem 22RQSC
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You are appointed audit senior of Banga & Co for the audit of Cari Appa, a manufacturer of men's coveralls with its year end of 31 July 2019. The following are some of the notes in respect of independent scenarios A, B, and C: A. 1) A planning meeting between Banga and Cari Appa revealed profit before tax of $2.4m and total assets of $16m, as per the draft financial statements. 2) You have been requested to audit the material balance of receivables, requiring a positive receivables circularisation to be done. 3) The finance director of Cari Appa informed you that the company was closing an assembly site resulting in redundancy of employees. A redundancy provision of $100,000 is included in the draft financial statements. 4) Three months later, your team's audit fieldwork examines the audit procedures in respect of the redundancy provision. The team has calculated that the necessary provision should amount to $300,000. The finance director is not willing to adjust the draft financial statements. B. Cari Appa changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. C. Banga & Co includes a separate paragraph in an otherwise unqualified report to emphasize that Cari Appa had significant transactions with related parties. Required: 1) Discuss the issue in scenario A and describe the impact on the auditor's report, if any, should this issue remain unresolved. 2) Discuss the proper reporting option in scenario B. 3) Discuss the inclusion of this separate paragraph in scenario C.
Transcribed Image Text:You are appointed audit senior of Banga & Co for the audit of Cari Appa, a manufacturer of men's coveralls with its year end of 31 July 2019. The following are some of the notes in respect of independent scenarios A, B, and C: A. 1) A planning meeting between Banga and Cari Appa revealed profit before tax of $2.4m and total assets of $16m, as per the draft financial statements. 2) You have been requested to audit the material balance of receivables, requiring a positive receivables circularisation to be done. 3) The finance director of Cari Appa informed you that the company was closing an assembly site resulting in redundancy of employees. A redundancy provision of $100,000 is included in the draft financial statements. 4) Three months later, your team's audit fieldwork examines the audit procedures in respect of the redundancy provision. The team has calculated that the necessary provision should amount to $300,000. The finance director is not willing to adjust the draft financial statements. B. Cari Appa changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. C. Banga & Co includes a separate paragraph in an otherwise unqualified report to emphasize that Cari Appa had significant transactions with related parties. Required: 1) Discuss the issue in scenario A and describe the impact on the auditor's report, if any, should this issue remain unresolved. 2) Discuss the proper reporting option in scenario B. 3) Discuss the inclusion of this separate paragraph in scenario C.
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