ISA 705 Modifications to the Opinion in the Independent Auditor's Report and ISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report include suggested wordings of modifying phrases for use when issuing modified reports.
Required
Explain and distinguish between each of the following terms:
1. 'Qualified opinion'
2. 'Disclaimer of opinion'
3. 'Emphasis of matter paragraph'
4. 'Other matter paragraph'
You are the audit manager of Petrie Co, a private company that retails kitchen utensils. The draft financial statements for the year ended 31 March 20X2 show revenue $42.2 million (20X1- $41.8 million), profit before taxation of $1.8 million (20X1 - $2.2 million) and total assets of $30.7 million (20X1 - $23.4 million).
You are currently reviewing two matters that have been left for your attention on Petrie's audit working paper file for the year ended 31 March 20X2:
Petrie's management board decided to revalue properties for the year ended 31 March 20X2 that had previously all been measured at depreciated cost. At the end of the reporting period three properties had been revalued by a total of $1.7 million. Another nine properties have since been revalued by $5.4 million. The remaining three properties are expected to be revalued later in 20X2.
On 1 July 20X1 Petrie introduced a ten-year warranty on all sales of its entire range of stainless steel cookware. Sales of stainless steel cookware for the year ended 31 March 20X2 totaled $18.2 million. The notes to the financial statements disclose the following.
'Since 1 July 20X1, the company's stainless steel cookware is guaranteed to be free from defects in materials and workmanship under normal household use within a ten-year guarantee period. No provision has been recognized as the amount of the obligation cannot be measured with sufficient reliability.'
Your auditor's report on the financial statements for the year ended 31 March 20X1 was unmodified.
Required
Identify and comment on the implications of these two matters for your auditor's report on the financial statements of Petrie Co for the year ended 31 March 20X2.