Scenario When chatting to your firm’s audit manager Ali and Lucy…
Question Answered step-by-step Scenario When chatting to your firm’s audit manager Ali and Lucy… ScenarioWhen chatting to your firm’s audit manager Ali and Lucy commented that they understood the need for auditors to adopt a suspicious approach when obtaining whatever audit evidence they obtain to meet objectives, and EXPECTED your firm to adopt this approach given the earlier incidence of fraud by two former directors. However, they also have EXPECTATIONS that as they are the joint majority shareholders in Plush, your firm should place a high degree of trust in the reliability of any written and verbal representations made by them when obtaining audit evidence. . In later discussions with the manager, the new financial director (Amalia Smart) stressed all the directors felt that Ali and Lucy’s EXPECTATIONS in this respect were justified because Ali and Lucy have nothing to gain by being untruthful when communicating with external auditors; and such an approach would mean your firm could spend less time on the audit and allow a consequent reduction in the audit fee. Similarly – and again something which Amalia discussed with your firm’s audit partner prior to the commencement of the audit – Ali and Lucy cannot see any need for your firm to have any concerns about the business risk profile of their company, but if it does then they’ll EXPECT the audit team to access the register of business risks faced by Plush, as maintained by Ali, so enabling the audit team to explore significant business risks Plush faces in every area of its operations at every level. Compiled by Ali over the last 15 years and reviewed and updated regularly following discussions with his co-directors, senior employees and external consultants; the computer-based register contains details of significant business risks including the likelihood of the linked threat materialising into an event or activity which will adversely impact Plush, the potential effect on the company’s day – to – day operations at branch shop level and the measures in place to avoid or reduce the risk. As mentioned by Amalia, though not understanding the need for your firm, as Plush’s external auditors, to explore the consequences of every business risk faced by Plush, Ali and Lucy EXPECT your firm’s audit partner to attend the company’s board of directors’ meetings and be part of Plush’s executive decision making process with regard to risk avoidance ad mitigation matters. QuestionIdentify any audit concerns arising from the fact that a new computerbased accounting system has been implemented by Plush Ltd, with effect from 1 February 2021, and state the effect that this should have on your firm’s’ approach to auditing the company’s financial statements for the year ended 30 September 2021. Accounting Business Financial Accounting Share QuestionEmailCopy link Comments (0)
