Disc 24-23 (OBJECTIVES 244, 24-3, 4-6, 24-7,24-4) Consider the following independent situations;
a. Thomas Cheung is auditing the accounts of a manufacturing company that is head
quartered in Hong Kong and operates facilities in Mainland China and Vietnam. As
some of the components that the company manufactures are for sensitive govern-
ment contracts, che local governments in China and Vietnam do not allow outsiders.
not even Thomas Cheung or his representatives, to access those premises. Instead,
a government auditor provides a summary of the inventory contained in the ware-
house and manufacturing facilities. Thomas believes that the inventory valuation
represents a major part of the financial statements for the company,
b. Rock Pool Design is an advertising services provider in Melbourne, Australia. The
company recently discovered that the design of their offices is making some of the
materials wear down faster than anticipated. As a result
, the company
switched to
the accelerated depreciation method from the straight-line method. The value of
Rock Pool Design's head office is substantial, so the auditor believes that the change
in accounting method is material.
c. Principessa Clothing is a clothing manufacturing company in Italy, specializing in
children's formal wear. Principessa produces several lines of clothing. Due to the
high cost of production for their babies and infant line of products and a recent fallin
demand, the auditor for Principessa is unsure whether this division of the company
will have sufficient funds to fulfill its debt obligations and other expenses in the next
fiscal year. The auditor also believes that the babies and infant line is immaterial to
Principessa's total assets and liabilities.
d. Premier Investments is a dominant investment bank in Ireland. Because of its size
and expertise, it conducts investment business over a large part of Ireland's business
and financial sector, including most of the major auditor firms. The auditor currently
auditing Premier Investments initially believed his firm was independent of the busi-
ness of Premier Investments but discovered that the spouse of one of his associates
holds Premier's investment products. The auditor believes that the total amount of
these investments is immaterial.
6. Danielle Chong is auditing the financial statements for Tiger Catering Company, which
is based in Singapore and provides food and beverage services for weddings and cor-
porate events. For simplicity, Tiger Catering's accountants do not use the allowance
method for recording bad debt expense as required under GAAP. Danielle believes
thar doubtful accounts represents a material portion of the liabilities of the
company,
but it does not have a significant impact on the rest of the financial statements.
For each of the above situations, indicate whether a departure from a standard unmodi-
fied audit opinion or an explanatory paragraph is required. If yes, also indicate the type of
modification or explanation the auditor should report.
Dar
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