Hi there
I'll be calling technical help later to discuss but in the meantime wondered what thoughts were here.
Basically we've completed audit procedures on a client who has had significant cash flow and trading issues that has been supported through these tough times by its overseas parent company and has been basically bank rolled by them. The parent company have pledged their continued support for the foreseeable future and we have obtained detailed confirmation of this from them so no worries on the face of it from that standpoint.
During the course of our audit work we have uncovered a material stock valuation error which I'm fairly sure the company directors are not going to want to adjust as it will make the results look appalling. We are adamant that this adjustment is correct however we have rarely if ever been in a position where a material error has been refused to be adjusted for, very lucky you might say.
There are no other issues which affect the true and fair view of the accounts so am I right in thinking we are looking at a qualified opinion based on a disagreement?
Thanks in advance
Replies (5)
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Yes of course.
From what you say you don't yet know whether the directors agree with your findings. If they don't, you have a technical disagreement, which you may need to do more work to resolve, especially if it involves judgement issues such as obsolescence etc. If they do, it is hard to imagine that they will put their names to accounts that the auditors' report will say are not worth the paper they are written on. But if they agree with you, but press on resolved to put out wrong accounts and just take your qualification, there are other issues about their ethical approach that you will need to consider.
Guessed that would be the outcome. it usually is. That is why disagreement qualifications are quite rare. And indeed it is tangible proof that an audit does serve a useful purpose. It has actually changed something in your case.
Support of Parent company
Slightly off topic but an issue I have seen not dealt with correctly many times - In considering whether the director's opinion on the company's ability to continue as a going concern is appropriate have you reviewed the parent company's ability to provide that support?
Re macaulay's point
An interesting article on whether parent company guarantees are binding:
http://www.mondaq.com/x/269488/Corporate+Commercial+Law/Parent+Company+G...