AUDITING
TOPICS COVERED: Revision Test 1 – Pre-engagement activities
REVISION TEST Revision Test 2 – Change in Masterfile
Revision Test 3 – Revenue cycle
Revision Test 4 – Risk assessment
Revision Test 1 – Pre-engagement activities
Background information:
You are an audit partner at CA Auditors Inc., a small audit firm. You have recently
been awarded the tender for the 30 January 2019 audit of Nikke Ltd, a
multinational conglomerate company with headquarters in South Africa. Nikke Ltd
is the largest manufacturer of sports equipment in South Africa. Nikke Ltd will be
your largest customer (in terms of revenue generated). You have allocated 3 article
clerks to the audit of Nikke Ltd, to ensure you meet the audit deadline of 1 March
2019. You are aware of two significant events taking place during the financial year
1) Nikke Ltd implemented a new computer information system
2) The board of directors have been implicated in a price fixing scandal
Required: Discuss the matters that you should consider, when deciding whether
to accept the audit of Nikke Ltd (9 marks
, Matters that you should have considered prior to accepting the audit of Nikke
Ltd.
1. Integrity of the client
The integrity of the board of directors is questionable as the board has
been implicated in a price fixing scandal. (1)
2. Engagement team’s competence, capabilities, time and resources
You do not appear to have adequate staff members to perform the audit of
Nikke Ltd. Only 3 article clerks have been planned for the audit client that is
a multinational conglomerate and the largest manufacturer of sports
equipment in South Africa /your largest audit client in terms of revenue (1)
Consideration as to whether there are foreign branches that are
required to be audited and whether there are resources available in
these areas. (1)
There is a tight audit deadline, the audit report is required 1 month
after year end therefore more audit team members will be required
on the audit. (1)
Consider the need for an IT expert in the implementation of the new
computer information system. (1)
Consider the need for experienced staff members trained in using
CAATs (1)
3. Ethical consideration
Nikke Ltd will be your largest client in terms of the revenue
generated. This would create a self-interest threat to independence.
(1)
The threat is considered significant, and thus the following
safeguards should be implemented to reduce the threat: (1)
- Reduce the dependency on the audit client (1)
- Engage a quality control reviewer to review the work performed (1)
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