Reference no: EM132826300

While reviewing audit work submitted for Partner review and preparation of the 30 June 2020 audit report, the following independent matters were noted in the papers:

a) Upon reviewing subsequent cash receipts it was noted that there were several receipts listed from customers that had been considered doubtful at the end of the year (30 June).

b) The audit work papers included notes that during the audit there had been 12 suppliers contacting the client to follow up on outstanding payments and request more information when suppliers could expect their payments. This situation prompted more testing and correspondence between the audit client and their bank. This correspondence highlighted that the bank overdraft was close to its limit and no further loans would be provided by the bank to the client. The client's financial report makes no comment regarding these issues or any financial issues.

c) An audit note dated July 27th 2020 stated that a damaging storm on July 23rd 2020 caused the roof of a client's warehouse to come off and most of their inventory on hand was water damaged and deemed unsaleable. Whilst insurance is expected to cover much of the cost of this damage, the client has estimated that it will take up to six weeks for the roof to be replaced and then new inventory to be received.

d) Industrial action was completed during August 2020 with the client and the employees agreeing to a pay an increase of 4% for all employees. Under the terms of the agreement, the pay increase will be backdated to January 1 2020.

Required:
For each independent situation, state how this information;

Problem 1: would impact the financial report opinion to be provided. State your reason(s) for your answer.

Problem 2: what further audit testing should be undertaken to confirm the accuracy of the information and how it could impact on the financial report.