Question

Assume that you are the audit partner on the engagement. During the audit at A company, the client prevented you from being able to observe the counting of fixed asset. The fixed asset amount is material in the client's financial statements. But, you were able to perform alternative procedures to support the existence and valuation of fixed assets at the year end

1. Identify which of the condition requiring a deviation from a standard unmodified opinion audit report is applicable, if any

2. State the level of materiality as immaterial, material or highly material. If you cannot decide the level of materiality, state the condition information needed to make decision

3. Give the type of audit report that should be issued. If you have not decided on one level of materiality in part 2, state the appropriate report for each alternative materiality level. Describe in detail the type of audit opinion selected

Answer 1

The specific work for the above question will include:

Assessing professional competence of A company. This will involve considering the professional certification or be licensing, or membership in, an approved professional body and an experience and reputation in Company A. When the auditor will verify the fixed assets, he will perform a two-way test. The test will follow, few assets from accounting records to physical and some assets from physical to accounting records and thus explain the assertions to be verified and make all the possible audit adjustments in case of any discrepancies

The objective of checking accounting records to physical is elaborate the existing report. If there are differences from the actual values, the incident should be investigated and write off should be authorized. Thus, the objective of checking account records is to verify that assets acquired are recorded.

Steps to verify existence assertion of fixed assets -

Evidence that may be inspected for existence assertion of investments includes the physical inspection, Bank confirmation for investments held as safe custody or mortgage and the receipt of dividends.

The table below summarizes the aspects -

Condition	Materiality Level	Report type	Conclusion
An audit has been restricted	Highly Material	Disclaimer	Because the client refuses to allow the auditor to expand the scope of his audit, a disclaimer of opinion appropriate rather than a scope of the audit qualified as to the scope of an opinion
None	Not Applicable	Unqualified	The company has made a business decision to follow a different financing method for to have use of a delivery truck, which is adequately disclosed.
Lack of Independence	Not Applicable	Disclaimer	Lack of independence by audit personnel on the engagement on company A, mandates a lack of disclaimer for the lack of independence.
Substantial doubt as to going concern	Material	Unqualified	Because the auditor has substantial doubt about the Company A's ability to continue as a going concern, the auditor should include a detailed statement about the unqualified opinion.
Failure to follow GAAP	Additional Information required for the auditor.	Adverse	The materiality of additional percentage of net earnings before taxes is sufficient for the auditor to have an adverse opinion. The judgement question is materaility