Q4 - Week 9 a) What are key audit matters? How do these affect the format of the audit report?
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Q4 - Week 9 a) What are key audit matters? How do these affect the format of the audit report? (2 marks)

b) Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is

writing a report for his audit partner based on these results and will be attending a meeting

tomorrow with the partner and representatives of the company to discuss them. The issue will be

whether the financial report should be amended, or additional notes included for these

subsequent events.

Many of the items are not material and Stewart will recommend that no action be taken with

respect to these. However, there are several items that Stewart believes are material and should

be discussed at the meeting. These are as follows.

(a) The board is planning to issue shares in a private placement on 15 August. (2 marks)

(b) The share issue is to fund the purchase of a 60 per cent stake in another company. The

negotiations are in the final stages and although the contract is not yet signed it will be signed

by 15 August. (2 marks)

(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for

illness allegedly caused by chemicals used at a subsidiary company's manufacturing plant in

the 1990s. This is the tenth such writ lodged, and the client has denied responsibility in all

cases because it was unreasonable to believe at that time that these chemicals had adverse

health effects. The claimant has new scientific evidence that counters this defence. (2 marks)

(d) The review of subsequent cash receipts has revealed that several of the trade receivables that

were considered doubtful have now been paid. However, the audit procedures have shown

that a large debtor that was considered safe at 30 June was unexpectedly declared bankrupt

on 20 July. (2 marks)

The year-end for the company is 30 June and the audit report is due to be signed on 20 August.

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