Reference no: EM132664604

Question - You are the audit manager in Riri & Co. and are currently reviewing the audit working papers of a few audit clients. The audit senior had left the following notes on the respective audit clients' files for your review:

Jati Bhd. Jati Bhd. is a distributor of high quality furniture. The audit team was allowed fair access to all books and records. However, the audit team was denied entry into the client's warehouse located in Petaling Jaya. The client claimed that an inventory count would require a 2-day shutdown of the warehouse and that would severely impact the delivery of goods to customers. As an alternative, the auditor was given access to necessary documentations such as the inventory listing as well as warehouse records. It is noted that inventory is a material item in Jati Bhd.'s books.

Metro Bhd. The client, Metro Bhd. has had a very challenging year. Profits have been declining for the past five consecutive years. Several key staff, including the financial controller have left the company during the last financial year. The client is also struggling to meet payments to suppliers and has defaulted on payment to its main supplier twice in recent months. In addition, the client has also defaulted on its loan covenant and the bank is insisting that the total loan amount of RM1 million should be repaid in full over the next three months. A meeting between the audit team and the directors of the client indicated that the directors are not overly concerned with the current state of affairs and they strongly feel that the company will be able to recover very soon.

Required - Explain how each of the above issues will impact the auditor's report.