(a) Explain why quality control may be difficult to implement in a smaller audit firm and illustrate how such difficulties may be overcome.

(b) Kite Associates is an association of small accounting practices. One of the benefits of membership is improved quality control through a peer review system. Whilst reviewing a sample of auditor’s reports issued by Tickitt & Run, a firm only recently admitted to Kite Associates, you come across the following qualified opinion on the financial statements of Lammergeier Group Ltd:

Qualified opinion arising from disagreement about accounting treatment relating to the non-adoption of IAS 7.

‘The management has not prepared a group cash flow statement and its associated notes. In the opinion of the management it is not practical to prepare a group cash flow statement due to the complexity involved. In our Opinion the reasons for the departure from IAS 7 are sound and acceptable and adequate disclosure has been made conceming the departure from IAS 7. The departure in our opinion does not impact on the truth and fairness of the financial statements.

In our opinion, except for the non-preparation of the group cash flow statement and associated notes, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2X10 and of the profit of the group for the year then ended, and have been properly prepared in accordance with ...’

Your review of the prior year auditor’s report has revealed that the 2X09 year-end audit opinion was identical.

Required:

Critically appraise the appropriateness of the audit opinion given by Tickitt & Run on the financial statements of Lammergeier Group for the years ended 31 December 2X10 and 2X09.