Question Tag: Modified Audit Report

During the audit of fixed assets for Next Engineering Plc as of December 31, 2016, two issues were encountered:

1. The cost calculations for direct labor on assets under construction were destroyed, with the direct labor cost totaling ₦20,000,000.
2. A government grant of ₦50,000,000, received for plant and equipment purchased during the year, was fully credited to the income statement as an exceptional item, though the plant and equipment have a 10-year useful life.

Requirements:
a. Discuss the general forms of modifications available to auditors in drafting their report and specify circumstances for each form.

(6 Marks)
b. Assuming a modified audit report is necessary regarding the government grant treatment, draft the relevant section (entire report not required).

(5 Marks)
c. Analyze the auditor’s general responsibility concerning the directors’ report on land and building valuation.

(4 Marks)