(a) The IAASB has conducted a review of the structure and content of audit reports, including the issuance of an Invitation to Comment on Improving the Auditor’s Report, in which several suggestions were made with the aim of improving the disclosure of matters included in the auditor’s report, including those relating to going concern status. Required: Explain the suggestions made by the IAASB in respect of additional disclosures in the auditor’s report regarding going concern status, and discuss the benefits of such disclosures. (8 marks) (b) You are an audit manager in Taylor & Co, a firm of Chartered Certified Accountants, responsible for the audit of Marr Co, with a year ended 28 February 2014. The draft financial statements recognise profit for the year of $11 million. The audit for the year end is nearing completion, and several matters have been highlighted for your attention by the audit senior, Xi Smith. The matters have been discussed with management and will not be adjusted in the financial statements: 1. In January 2014 a major customer went into administration. There was a balance of $2·5 million owing to Marr Co from this customer at 28 February 2014, which is still included in trade receivables. 2. A court case began in December 2013 involving an ex-employee who is suing Marr Co for unfair dismissal. Lawyers estimate that damages of $50,000 are probable to be paid. The financial statements include a note describing the court case and quantifying the potential damages but no adjustment has been made to include it in the statement of financial position or the statement of profit or loss. Xi Smith has produced a draft audit report for your review, an extract of which is shown below: Basis for opinion and disclaimer of opinion We have performed our audit based on a materiality level of $1·5 million. Our audit procedures have proven conclusively that trade receivables are materially misstated. The finance director of Marr Co, Rita Gilmour, has refused to make an adjustment to write off a significant trade receivables balance. Therefore in our opinion the financial statements of Marr Co are materially misstated and we therefore express a disclaimer of opinion because we do not think they are fairly presented. Emphasis of Matter paragraph Marr Co is facing a legal claim for an amount of $50,000 from an ex-employee. In our opinion this amount should be recognised as a provision but it is not included in the statement of financial position. We draw your attention to this breach of the relevant IFRS. Required: Critically appraise the proposed auditor’s report of Marr Co for the year ended 28 February 2014. Note: You are NOT required to re-draft the extracts from the auditor’s report. (12 marks)