(b) You are an audit manager in a firm of Chartered Certified Accountants currently assign

(b) You are an audit manager in a firm of Chartered Certified Accountants currently assigned to the audit of Cleeves

Co for the year ended 30 September 2006. During the year Cleeves acquired a 100% interest in Howard Co.

Howard is material to Cleeves and audited by another firm, Parr & Co. You have just received Parr’s draft

auditor’s report for the year ended 30 September 2006. The wording is that of an unmodified report except for

the opinion paragraph which is as follows:

Audit opinion

As more fully explained in notes 11 and 15 impairment losses on non-current assets have not been

recognised in profit or loss as the directors are unable to quantify the amounts.

In our opinion, provision should be made for these as required by International Accounting Standard 36

(Impairment). If the provision had been so recognised the effect would have been to increase the loss before

and after tax for the year and to reduce the value of tangible and intangible non-current assets. However,

as the directors are unable to quantify the amounts we are unable to indicate the financial effect of such

omissions.

In view of the failure to provide for the impairments referred to above, in our opinion the financial statements

do not present fairly in all material respects the financial position of Howard Co as of 30 September 2006

and of its loss and its cash flows for the year then ended in accordance with International Financial Reporting

Standards.

Your review of the prior year auditor’s report shows that the 2005 audit opinion was worded identically.

Required:

(i) Critically appraise the appropriateness of the audit opinion given by Parr & Co on the financial

statements of Howard Co, for the years ended 30 September 2006 and 2005. (7 marks)