You are the Audit Manager in Peptom Partners, a firm of Chartered Accountants. Your role includes performing post-issuance audit quality reviews. You have been tasked to review the audit work performed on Kaaklo Plc for the financial year ended 31 January 2021. The following information was gathered from your review of the audit file:
Audit team and fees
Kaaklo Plc is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Kaaklo Plc has been an audit client of Peptom Partners for eight years, and Kofi Sika has been the Audit Engagement Partner during this time. Kaaklo Plc’s auditor’s report was signed by Kofi Sika and issued last week. The report contained an unmodified opinion.
Peptom Partners requires its staff to record each hour they spend working on each client in the firm’s time management system.
From reviewing the time records relating to the audit of Kaaklo Plc, you identified that Kofi Sika and the other audit team members recorded the following hours on the audit:
- Kofi Sika – Audit Engagement Partner: 2 hours
- Coffie – Senior Audit Manager: 6 hours
- Mabel – Audit Manager: 35 hours
- Six Audit Assistants: 130 hours
Total time spent on audit: 173 hours
It is apparent from your review that almost all the detailed review of the audit working papers was completed by Mabel, who has evidenced her review by stating ‘final review’ on each page of the audit file. She has recently been promoted to the position of Audit Manager.
You are also aware that Kofi Sika booked a total of 40 hours to Kaaklo Plc in respect of non-audit work performed. The only information you can find in the file is that the non-audit work related to a ‘special investigation,’ and that Kofi Sika confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was GH¢250,000 and the fee for the ‘special investigation’ was GH¢890,000.
Going concern
From reviewing the audit working papers, you are aware that Kaaklo Plc’s ability to continue operating into the foreseeable future was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the company’s construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.
Most of the audit work on going concern was performed by Mary Lamptey, an audit assistant who has just written her last professional exam and is not yet qualified. The majority of the audit work performed on the going concern focused on a review of five major contracts to determine their profitability. The management of Kaaklo Plc identified the major contracts for review and provided Mary with forecasts indicating that the contracts would have little impact on profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary concluded that there is no significant uncertainty over Kaaklo Plc operating into the foreseeable future.
Required:
Comment on the quality of the planning and performance of the audit of Kaaklo Plc. (10 marks)
