Morris Ltd has reported losses two years in a row and has a debt to total assets ratio of 0.90. In addition, a $5 million debenture is maturing next year and the company has not set aside any funds to repay the debt. The parent entity of
Morris Ltd has decided to repay the debenture when it matures and provide sufficient funding to cover any additional
Losses that Morris Ltd might incur. Morris Ltd has not disclosed these arrangements in its financial report and the
Auditor is adamant that it should be brought to the shareholders' attention. What type of opinion should the auditor
Express on the financial report of Morris Ltd?
A) Disclaimer of opinion.
B) Unmodified opinion with an Emphasis of Matter.
C) Unmodified opinion.
D) Qualified opinion or adverse opinion.

Question

Quizplus · Accepted Answer

The auditor should express a qualified opinion or an adverse opinion because the financial report does not disclose the arrangements with the parent entity, which could have a material effect on the financial statements.

Morris Ltd Has Reported Losses Two Years in a Row