For the following independent and material situations, assume you are the audit partner on different engagements.  For each situation, analyse and explain how the situation would affect your audit report. (A)  A former IT staff of the audit client accidentally deleted a lot of accounting data and there was no backup copy of the data. (2.5 marks)  (B)  The auditor thinks the audit client has over-valued its land and buildings. The audit client refuses to make corrections. (3 marks)(C)  The audit client has issued a new version of the annual report due to several subsequent events. (0.5 mark)(D)  Your audit client has reported a substantial loss this year due to rising costs and strong competition. There are also concerns about the audit client's ability to pay its current liabilities. The audit client's managers are negotiating with banks to raise additional funding to help cover the cash flow shortage. After evaluating the audit client’s situation, you believe the going concern assumption is still appropriate. How does this affect your audit report? (4 marks)

Factors to consider include:The nature, scope, intended use and purpose of the service.The degree of reliance that will be placed on the outcome of the service in the audit.The legal and regulatory environment in which the service is provided.Whether the client is a public interest entity.Whether it is material;The degree of subjectivity involved.The client’s level of expertise concerning the type of service provided.Whether the outcome will affect the accounting records or matters reflected in the financial statements, and, if so:Whether it is material;The degree of subjectivity involved.The extent of the client’s involvement in determining significant matters of judgment.The degree of reliance that will be placed on the outcome of the service in the audit.Whether the client is a public interest entity.The fee for the NAS.

An auditor must understand audit risk and its components when planning a financial report audit. The firm of Thomas & Fine evaluates the risk of material misstatement by disaggregating it into its three components: inherent risk, control risk and detection risk.RequiredFor each situation in the table below, select the component of audit risk that is most directly illustrated. The components of audit risk may be used once, more than once, or not at all. SITUATIONCOMPONENT OF AUDIT RISK(a) Segregation of duties is inadequate. (b) Confirmation of receivables by an auditor fails to detect a material misstatement. (c) Cash payments have occurred without proper approval. (d) A client, Expo Ltd, has a large cash balance. (e) A necessary substantive audit procedure has been omitted. (f) Technological innovations within the industry have caused a major product to become obsolete. (g) A client, Rocket Ltd, has insufficient working capital to continue its operations.

Analytical procedures used in planning an audit should focus onSelect one:a.Providing assurance that potential material misstatements will be identified.b.Assessing the adequacy of the available evidential matter.c.Enhancing the auditor's understanding of the client's business.d.Reducing the scope of tests of controls and substantive tests.

Use the accompanying solution sheet to reply to the eight situations below that relate to the audit of financial statements of nonpublic companies. Unless indicated otherwise, assume that material amounts are involved. Do not consider including an emphasis-of-matter paragraph in an "auditor discretionary" circumstance. Situations: A company has departed from GAAP. A company's inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures. She is satisfied that she has sufficient appropriate evidence. In auditing a client, an auditor has determined that substantial doubt exists about an entity's ability to continue as a going concern. A group auditor decides not to take responsibility for the work of the component auditor who audited a 70% owned subsidiary and issued an unmodified opinion. The total assets and revenues of the subsidiary are 5% and 8%, respectively, of the total assets and revenues of the entity being audited. A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change. The change has a material effect on the comparability of the entity's financial statements this year, but is expected to have an immaterial effect in the future. Inadequate record retention policies by the client have resulted in a situation in which a CPA is unable to obtain sufficient appropriate audit evidence with respect to a material account. A CPA has decided to emphasize in the audit report that the company she audited is a component of XYZ Company, its parent. A client has changed its estimate of likely doubtful accounts from 2% of credit sales to 3%. The auditor believes the change to be reasonable. Reply as to the type of opinion and other modification to the audit report as follows: A. Adverse D. Disclaimer Q. Qualified U. Unmodified Other Modification EOM Add an emphasis-of-matter paragraph. OM Add an other-matter paragraph. BFM Add a basis for modification paragraph. OTHER Make modifications other than adding an additional paragraph. NONE Make no modifications. If more than one type of opinion is appropriate list each—one with "Report 1" and one with "Report 2." If only "Report 1" is appropriate, place an X in the "Report 2" Opinion Type cell, which indicates no second type of report is appropriate. Situation Opinion Type Other Modification BEM BEM NONE 1 A U 2 X EOM 3 D BEM OTHER U 4 Report 1 Report 2 Report 1 Report 2 Re I Don't Know If My Answers Are Correc

The auditor shall document:Select one:a.Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements.b.Issues identified with respect to compliance with relevant ethical requirements and how they were resolved.c.All of these must be documentedd.Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions.