Question 5b - Part2
The schedule of proposed adjustments to uncorrected misstatements included in Bradley Co’s audit working papers is shown below, including notes to explain each matter included in the schedule. The audit partner is holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.
| Statement of profit or loss | Statement of financial position | |||
|---|---|---|---|---|
| Proposed adjustments to uncorrected misstatements: | Debit $ | Credit $ | Debit $ | Credit $ |
| 1. Share-based payment scheme | 300,000 | 300,000 | ||
| 2. Restructuring provision | 50,000 | 50,000 | ||
| 3. Additional allowance required for slow-moving inventory | 10,000 | 10,000 | ||
| Totals | 310,000 | 50,000 | 50,000 | 310,000 |
2. A provision has been recognised in respect of a restructuring involving the closure of one of the steel processing plants. Management approved the closure at a board meeting in August 2014, but announced the closure to employees in September 2014. The audit conclusion is that the provision should not be recognised.
Required:
(i) Explain the matters which should be discussed with management in relation to each of the uncorrected misstatements; and (9 marks)
(ii) Assuming that management does not adjust the misstatements, justify an appropriate audit opinion and explain the impact on the auditor’s report. (4 marks)