Question Tag: Abati Quarries

Abati Quarries Limited was registered with the Corporate Affairs Commission in 2017 and commenced operations in 2019. The beginning was rough, as the property, plant, and equipment costs were beyond the initial projections, and the company had to make do with fairly used equipment, which kept breaking down along the line.

Products were meant for supply to its parent company, Abati Estates, which is into real estate. Abati Quarries Limited hardly had substantial finished goods (granites) as closing inventory. The Audit Manager later insisted that boulder rocks blasted at the site should be regarded as unfinished inventory or work-in-progress.

In addition, the performance of Abati Quarries Limited was at variance with the performance of competitors in the industry, as the company had been returning losses from inception. The Audit Manager then required that the audit team should intimate the General Manager of the company of the decision to determine the cost of the boulder rocks and include it in the financial statements as closing work-in-progress. The General Manager, however, disagreed.

The Audit Manager therefore instructed you, the Audit Senior, to draft appropriate paragraph(s) on Key Audit Matters (KAMs), suitable for inclusion in the Independent Auditor’s report, to bring this matter to the attention of the company’s shareholders.

Required:

a. Explain “Key Audit Matters” (KAMs) in relation to the Audit Report. (2 Marks)

b. Explain TWO types of audit in which the auditor is required to communicate Key Audit Matters, in accordance with ISA 701. (3 Marks)

c. Draft the “Key Audit Matters” section for inclusion in the auditor’s report of Abati Quarries Limited to capture the “boulders” issue. (6 Marks)

d. Highlight TWO important matters the auditor will consider before determining if a matter is a Key Audit Matter. (4 Marks)