Question - You are an audit manager finalising your 30 June 2015 audits. The following independent and material matters have come to your attention:
The audit of, the statutory records of Whale Ltd, a reporting entity, revealed the following problems:
1. failure to update the members' register for changes in shareholders
2. failure to obtain written consent from directors to act
3. no preparation of minutes of directors' meetings in respect of the current year
4. failure to hold the annual general meeting in the previous financial year
5. the company made no comment in respect of either the failure to keep properly updated statutory registers or the failure to hold an annual general meeting.
1. Shark Ltd, a reporting entity, uses last-in first-out in respect of valuation of closing inventories, which is one of the most significant balance sheet accounts. The difference between first-in first-out and last-in first-out has a material effect on the closing inventory balance.
2. Dugong Ltd is a holding company with a number of wholly owned subsidiaries. One of these, Manatee Ltd, is a self-sustaining foreign subsidiary with manufacturing and distribution facilities throughout South-East Asia. The group accounts of Dugong and its subsidiaries consist of the consolidated statements of Dugong and its subsidiaries and exclude those of Manatee, which are attached separately. The consolidated statements include a note stating that the directors believe it is misleading to consolidate Manatee because its operations are very different from those of the rest of the group and are carried out under substantially different conditions. The note includes details of intercompany balances and transactions.
Required - Discuss the audit issues to be considered in each of the above circumstances, and their likely impact on the audit opinion to be issued. Justify your answer with references to auditing standards and the Corporations Act, as appropriate.