POODLE GROUP

From Fathin Nadhirah to Everyone: 08:33 AM

Loan to key personnel

Loan to the key management personnel is a related party transaction.
IAS24 states that related party transactions are material in nature and the details of the transactions
need to be disclosed in the notes to the financial statement.
From the case, the management did not disclose the loan in the notes to the financial statement.
Although the amount of $75,000 is trivial and immaterial to the financial statement, it is material by
nature, thus, should be disclosed.
This may lead to financial statement contain material misstatement.
Auditor should discuss with management to request them to make the disclosure in the financial
statement.
If Basking Co refused to make adjustments on the disclosure, the audit opinion will be modified on
the ground of financial statement contain material misstatement.
The issue is material but not pervasive as it is only a single misstatement. Thus, a qualified ’except
for’ opinion will be issued.
The basis for qualified ‘except for’ opinion paragraph will b

From Fathin Nadhirah to Everyone: 08:33 AM

The basis for qualified ‘except for’ opinion paragraph will be inserted after qualified opinion
paragraph to clearly explain the issue that gives rise to the modification of audit opinion.

From Nurul Sharifah to Everyone: 08:38 AM

The error is identified from a sample whre the materiality are less than 0.001% of TA, less than
0.02% of profits, therefore immaterial.

If the error is being extrapolated into the whole population, it may result into a total error of $9.7mil
(35000/4.5milx125mil).

This represents 0·03% of total assets and 0·4% of profits, also not material.
This is known as factual error where the management should be asked to correct the error in the
non-current asset register.

If management refuses to amend the the error in the valuation of motor vehicles, then assets and
depreciation will both be misstated by an immaterial amount.

Therefore, the auditor would issue an unmodified audit opinion, stating that the financial statements
are fairly presented.

-DEPRECIATION CHARGE-

From Nurul Athirah Bt Ros Saidi to Everyone: 08:40 AM

Provision
The previous provision was 7% which was $328m. the management has educed iit to 4% which
makes it $188m. this is reduced by $140 m. this is 5.5% of profit and 0.25% of total revenue and
0.38% of total asset. This is considered material to both income statement but not balance sheet.
A change in provision should be reasonable and supported by evidence to show it is appropriate.
However, auditor have not found any evidence to support the change. This is a judgemental
misstatement as it involves management’s judgement on a subjective area.
Auditor must apply professional scepticism on this matter and ensure management is not trying to
deliberately increase their profits.
As per IAS 37, provision is recognised when there is present obligation due to past events.
Thus, auditor should ask for evidence to support the change from management.
If no evidence can be presented, auditor should explain to management that the change is
unjustified as it is found that the refund levels were similar to previous yea

From Nurul Athirah Bt Ros Saidi to Everyone: 08:41 AM

Thus, until effective evidence can be presented, management should continue using 7% of one
month’s sale as their calculation for provision.
Opinion
If management refuse to amend the provision, auditor will issue a modified opinion on the ground of
financial statement contain material misstatement.
Auditor will issue a qualified ‘except for’ opinion as the issue is material but not pervasive.

BASKING SEPT/DEC 17

(I) Explain the matters which should be discussed with management in relation to each
uncorrected misstatements
(II) Assuming that management does not adjust the misstatements identified, evaluate the
effect of each on the audit opinion