Audit Opinion Australian Accounting Standards Board

Questions: 1. The Croucher company has been valuing its buildings using the fair value method .Its buildings are currently shown in the balance sheet at their current market value of 18.5 million. The buildings had originally cost 12 million.2. The Kaycee company values its inventory at LIFO and is unwilling to change it to FIFO as required by the Australian accounting standards.The amount of the misstatement is known and is limited to its effect on the inventory .3. The Genome company has prepared its financial statements but has left out details of its related party disclosures due to privacy issues.This information is required to be included under the Australian accounting standards and while the effects are material they are able to be calculated. Answers: 1. According to Australian Accounting Standards Board, AASB 116, any property, plant or equipment, from which any economic future benefits are derived shall be measured and recognised at cost only. Any discrepancy shall not be considered as valid and correct. In the given case, the buildings would be valued and shown in balance sheet at the cost only, i.e. at $ 12 million. Hence, the auditor should ask the management to adjust such discrepancy. If the management refuses to adjust the same, the auditor should issue a qualified or adverse audit opinion. Before making any decision, the auditor should effectively communicate with those charged with governance, and only if, the top managerial persons refuse to make the desired and proposed changes, the auditor should give a disclaimer / adverse opinion. The auditor should clearly state about the action of the management on such a material issue and clearly state his opinion in the audit report. 2. According to Australian Accounting Standards Board, AASB 102, the inventories should be valued according to the First in first out method (FIFO) or the weighted average formula. Any discrepancy shall not be considered as valid and correct . Since the company refuses to change its cost formula to FIFO, as an auditor, you can give a qualified or adverse audit opinion. The auditor should begin with requesting the management to make the desired changes. And the management should adhere to, and respond positively to all the directions given by the auditor. If the management restrains from making the desired changes, then, the auditor should communicate with those charged with governance and straightaway, if the default is arising since more than a year, then, he should refuse such audit engagement. And once the auditor refuses his audit engagement, then, he shall no longer be liable or act as a representation to the company for taxation or financial matters. 3. According to Australian laws, the management of the company is responsible for the identification, disclosure and accounting of the related party transactions. Related party transactions refer to those transactions which the company incurs between the company and its directors or managers or any family members of such directors or managers. If the auditor finds that the company engages himself in such related party transactions but, the required related party disclosures are not being made, then, he should decide whether the financial statements of the company are misleading due to the above effects and if yes, then communicate it with those charged with governance and reflect in the audit report as qualified/ adverse opinion. If the company continues such default in the disclosure of related party transactions for more than a year, then, he should resign himself from conducting such audit and inform about any such default of the company to the other professionals proposed to be appointed as the auditor, in his place. This is a statutory discipline to be adhered to by the auditing professionals.