Inventory at a market value of 475000 the directors

inventory at a market value of £475,000. The directors intend to include this inventory in the year-end
financial statements at its original cost.
The draft financial statements show that Buzzwell’s profit before tax is £5,075,000.
Pollen plc (Pollen)
Pollen is a pharmaceutical company specialising in the manufacture of drugs for hay fever sufferers. It
currently manufactures the market-leading drug, Hiveal, which accounts for 65% of the company’s
annual revenue. High numbers of sufferers have recently experienced adverse side effects when
using Hiveal and a government committee is now investigating this. Pollen’s licence to manufacture
Hiveal has been temporarily suspended until the investigation is complete.
The investigation by the government committee will not be concluded until after the financial
statements for the year ended 31 December 2009 have been published. The directors have disclosed
this matter in a note to the draft financial statements, stating that if the licence is not reinstated there
would be significant doubts over Pollen’s ability to continue to trade.
Bloome plc (Bloome)
Bloome purchased a new manufacturing plant on 1 January 2009 for £2.8 million. The plant was
capable of being operated at this date but production did not commence until 30 June 2009 due to a
worldwide shortage of an essential raw material for the production process. The plant is being
depreciated, using the straight-line method, over 10 years and the directors have charged six months’
depreciation on cost in the income statement for the year ended 31 December 2009.
The draft financial statements show that Bloome’s profit before tax is £1.3 million.
Requirements
(a) Explain the two circumstances in which a modified audit report would include an
unmodified audit opinion . Provide one illustration of each circumstance. (3 marks)
(b) In each of the situations outlined above, state whether you would modify the audit report. Give
reasons for your conclusions and outline the modifications, if any, to each audit report.
(17 marks)
(20 marks)

© The Institute of Chartered Accountants in England and Wales 2010. Page 1 of 8
Professional Stage Examination
Tuesday 15 June 2010
(2½ hours)
AUDIT AND ASSURANCE
This paper is in two parts.
Instructions for answering are given before each part. Read them carefully.
Answer each question in black pen only.
DO NOT TURN OVER UNTIL YOU ARE INSTRUCTED TO BEGIN WORK.
IMPORTANT
Question papers contain confidential information and must NOT be removed from
the examination hall.
You MUST submit this question paper with your answer booklet and enter your
candidate number in this box.
IF YOU FAIL TO DO SO YOUR SCRIPT WILL NOT BE MARKED

© The Institute of Chartered Accountants in England and Wales 2010. Page 2 of 8
June 2010
AUDIT AND ASSURANCE - PART ONE
(20 marks)
1. Answer all SIX questions.