Question Tag: Audit findings

You are the manager responsible for the audit of CGL, a public interest entity, for the year ended 31 December 2018. Your firm was appointed as auditors of CGL in September 2017. The audit work has been completed, and you are reviewing the working papers in order to draft a report to those charged with governance. The statement of financial position (balance sheet) shows total assets of GH¢ 78 million (2017 – GH¢ 66 million). The main business activity of CGL is the manufacture of farm machinery.

During the audit of property, plant, and equipment it was discovered that controls over capital expenditure transactions had deteriorated during the year. Authorisation had not been granted for the purchase of office equipment with a cost of GH¢ 225,000. No material errors in the financial statements were revealed by audit procedures performed on property, plant, and equipment.

An internally generated brand name has been included in the statement of financial position (balance sheet) at a fair value of GH¢ 10 million. Audit working papers show that the matter was discussed with the financial controller, who stated that the GH¢ 10 million represents the present value of future cash flows estimated to be generated by the brand name. The member of the audit team who completed the work programme on intangible assets has noted that this treatment appears to be in breach of IAS 38 Intangible Assets, and that the management refuses to derecognise the asset.

Problems were experienced in the audit of inventories. Due to an oversight by the internal auditors of CGL, the external audit team did not receive a copy of inventory counting procedures prior to attending the count. This caused a delay at the beginning of the inventory count, when the audit team had to quickly familiarise themselves with the procedures. In addition, on the final audit, when the audit senior requested documentation to support the final inventory valuation, it took two weeks for the information to be received because the accountant who had prepared the schedules had mislaid them.

Required:

a) Identify FIVE (5) purposes of including ‘findings from the audit’ (management letter points) in a report to those charged with governance. (5 marks)

b) From the information provided above, identify the matters which should be included as ‘findings from the audit’ in your report to those charged with governance, and explain the reason for their inclusion. (15 marks)