- 10 Marks
AA – Mar 2024 – L2 – Q2b – Audit and Assurance Risk Environment
Discuss audit risks and the necessary measures auditors should take to mitigate issues in the engagement.
Question
Abansro Corporation is a publicly traded company in the manufacturing industry. The company is yet to appoint an auditor to replace its previous auditor. A member of the board of Abansro Corporation, who is also a friend of the owners of an audit firm, referred the audit firm to Abansro Corporation. The board approved the appointment of the audit firm without considering the potential audit risks associated with the referral.
The audit firm conducted the audit for the year 2022, and the audit opinion issued was unqualified. However, in the course of 2023, it was discovered that there were material misstatements in the financial statements that were not detected by the audit firm. These misstatements resulted in a significant loss for the company and its shareholders.
As a result, Abansro Corporation faced legal action from its shareholders for the losses incurred due to the misstatements. The audit firm was also held liable for negligence and breach of professional duty.
Required:
i) Describe THREE (3) audit risks for a board member referring his friend who is the owner of an audit firm to be appointed by Abansro Corporation. (6 marks)
ii) What measures should have been undertaken by the Auditors to mitigate the issues associated with this engagement? (4 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit Risk, Auditor Independence, Negligence, Professional Duty
- Level: Level 2
- Topic: Audit and Assurance Risk Environment
- Series: MAR 2024