Reference no: EM132540194

Question - You are undertaking the audit for the year ended 30 June 2018 of Durable Drums Ltd, a manufacturer and retailer of steel drums. As in previous years, Durable Drums has accounted for inventory on a last in, first out (LIFO) basis. Durable Drums also uses a 'just-in-time' inventory management system and therefore the effect of this departure from Australian accounting standards was previously not material. In the current year, however, the company has a large stockpile of inventory at year end, due to an unexpected cancellation of a major order en route to its destination. In order to cut freight costs, Durable Drums stored the foods temporarily in Thailand, hoping for an order from another South-east Asian customer.

Unfortunately, you were not told of this problem until after balance date and did not conduct a stock take of the inventory. You have also been told that some of the inventory has since been shipped to a number of different customers to fill outstanding orders. The available audit procedures have been unable to validate the existence of this inventory at balance date. The relevant inventory is currently recorded at $2,500,000. Audit procedures have indicated that, had inventory been accounted for on a first in, first out (FIFO) basis, it would have been record at $3,500,000. Materiality for the audit has been set at $1,000,000.

Required - What is the most appropriate auditor's opinion for Durable Drums for the year ended 30 June 2018?