Subsidiary Audit – NBC Institute

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)

Answer

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Tags: Audit Planning, Business Risk Approach, Consolidation Procedures, etter of Instruction, Subsidiary Audit
Level: Level 3

Topic: Audit of Complex Entities
Series: NOV 2023

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Question

Chuks Roberts Plc (CRP) operates as an auto-parts manufacturing company in Nigeria with headquarters in Lagos. CRP plans to manufacture drones for parcel distribution across Africa and has acquired Zaka Roberts Limited (ZRL), a South African company based in Johannesburg, to bring this plan to fruition.

Zaka previously specialized in manufacturing computer-controlled equipment for laboratories and other industries in Africa and the Middle East. The company was owned by five directors/shareholders who accepted CRP’s offer on February 1, 2016, to purchase Zaka’s manufacturing equipment, technology (patent-protected), Cape Town factory, and Johannesburg head office for US$450 million, representing 75% of Zaka’s value.

Effective March 31, 2016, Zaka ceased manufacturing, making most employees redundant except for a select few in marketing, accounts, and administration, with one month’s notice. The restructured entity, now named Chuks Zaka Limited (CZL), will operate as a marketing arm selling CRP’s drones in the South African region, with CRP holding a 55% stake.

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

Required:
a. Analyse and evaluate the business risks that would be assessed by the management of CZL. (6 Marks)
b. Analyse and evaluate the business risks that would be assessed by the directors of CRP.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit risks, Business Risks, Financial Statement Risk, Mergers and Acquisitions, Planning, Subsidiary Audit
Level: Level 3

Topic: Group audit
Series: NOV 2017

AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Planning, Business Risk Approach, Consolidation Procedures, etter of Instruction, Subsidiary Audit
Level: Level 3

Topic: Audit of Complex Entities
Series: NOV 2023

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Question

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit risks, Business Risks, Financial Statement Risk, Mergers and Acquisitions, Planning, Subsidiary Audit
Level: Level 3

Topic: Group audit
Series: NOV 2017

Question Tag: Subsidiary Audit

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AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

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AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

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AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

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AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

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AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

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