Q1. Company X and Company Y are in same industry and have similar market capitalization and financial health. However, recent external audit report specified “unmodified opinion” for Company X and “qualified opinion” for Company Y. Based on the information, as an equity investor, which company you prefer to invest and why?
Explain your answer by referring to the divisions of ‘qualified opinion’ and ‘unmodified opinion’. Your answer should be justifying the reason why you decided to invest in such company?
Q2. A major decision facing every auditor is determining appropriate types and amounts of evidence to accumulate to be satisfied that the components of the client’s financial statements and the overall statements are fairly stated. This judgment is important because of the prohibitive cost of examining and evaluating all available evidence.
The auditor’s decisions on evidence accumulation can be broken down into the following four sub decisions:
1. Which audit procedures to use?
1. What sample size to select for a given procedure?
1. Which items to select from the population?
1. When to perform the procedures?
Critically discuss these four sub sections that are relevant for audit evidence.