ExpertACCA · Question 15 · Audit and Assurance
CASE 3: AEROFORGE HEAVY INDUSTRIES
AeroForge Heavy Industries manufactures industrial turbines. The manufacturing process takes 8 months per turbine. At year-end, there is significant Work-in-Progress (WIP). AeroForge provides a 5-year warranty on all turbines. During the year, a major customer sued AeroForge for $2m due to a turbine failure; AeroForge's lawyers believe a payout is 'possible' but not 'probable'. AeroForge revalued its manufacturing plant this year, resulting in a $5m revaluation surplus.
QUESTION:
Assume that shortly before the audit report is signed, new evidence emerges proving that AeroForge will definitely lose the $2m lawsuit. Management refuses to adjust the financial statements to include a provision. The $2m is material but NOT pervasive to the financial statements.
What type of audit opinion should be issued?
CASE 3: AEROFORGE HEAVY INDUSTRIES
AeroForge Heavy Industries manufactures industrial turbines. The manufacturing process takes 8 months per turbine. At year-end, there is significant Work-in-Progress (WIP). AeroForge provides a 5-year warranty on all turbines. During the year, a major customer sued AeroForge for $2m due to a turbine failure; AeroForge's lawyers believe a payout is 'possible' but not 'probable'. AeroForge revalued its manufacturing plant this year, resulting in a $5m revaluation surplus.
QUESTION:
Assume that shortly before the audit report is signed, new evidence emerges proving that AeroForge will definitely lose the $2m lawsuit. Management refuses to adjust the financial statements to include a provision. The $2m is material but NOT pervasive to the financial statements.
What type of audit opinion should be issued?
Answer options:
An unmodified opinion with an Emphasis of Matter paragraph.
A qualified opinion ('except for').
An adverse opinion.
A disclaimer of opinion.
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