You are the external auditor of Apex tour Ltd, a company which promotes New Zealand tours to Australia and owns chain duty free shops. You have been auditing the company since it was listed on the Australian stock exchange 10 years ago. Although the accounts have never been qualified, you are aware that the company the company has been making loss for past three years as result of short term cash flow difficulties. The company has no longer loans and the bank overdraft near its limit at the financial year.
During the financial year, the company upgraded its accounting system to computer data base. A consultant was hired to aid in the correct changeover of files for this system. At year end, this new system had been place for 6 months, and directors report they are with the in which they are operating. You don't have expertise to review and evaluate the data base management system, so you can ask an independent expert to undertake this role. The person concludes that the system appears reliable and that changeover was correctly carried out. You have never before audited this types of system, so you attend some courses to familiarise yourself with its new feature.
In our review of the minutes of the board of directors meeting, you become aware that the New Zealand parent company (which own 40% of the shares of the company) is considering making an offer for the remaining shares.
After your audited 30 June 2009 financial statement are published, the takeover offer from the New Zealand parent company proceeds on the basis of an offer price equivalent to net assets per shares $1.1.
While these compulsory acquisition proceedings are being instituted, it is discovered that there were error in the changeover of the computer system, which resulted in inventory at the duty free stores being materially misstated. After the subsequent write down inventory, a new net assets per share $0.70 per share is established. The New Zealand parent is suing you for alleged negligence for its loss of $0.40 per shares.
1. What audit methodologies are established to conduct an audit? What substantive test you can apply when you conduct audit to Apex tour Ltd?
2. As an external auditor of Apex tour Ltd how would you achieve audit objective?
3. What is audit evidence? As qualified auditor what procedure you would use to gather evidence to form an opinion?
4. What does mean by term" materially "? Above mention case have you found any information that is materially misstated?
5. What is the difference between qualified opinion and unqualified opinion? In your case studies what type's opinion you would express and why?
6. Prepare standard format of independent audit report that can be used for Apex tour Ltd. What types of information contain in independent audit report?
7. What weakness you can identify of Apex tour Ltd when you have conducted audit.