- 20 Marks
AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities
Outline procedures for consolidated audit, risk approach, and communication with new auditors.
Question
ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.
ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.
There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.
Required:
a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)
b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)
c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)
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