You are a senior manager in Tanor & Associates, responsible for the audit of Gyamfuwaah Group, which has been an audit client for several years. The companies in the group all have a financial year ending 30 June and you are currently planning the final audit of the consolidated financial statement for the year ending 30 June, 2010. The group’s operation focuses on the marketing of oil and gas products. Information about several matters relevant to the group audit is given below. These matters are all individually potentially material to the consolidated financial statements. None of the companies in the group is listed on the Ghana Stock Exchange. Gyamfuwaah Limited This is the parent company, it is a non-trading entity and wholly owns three subsidiaries – Wassa Limited, Hausa Limited and Banda Limited, all of which are involved in core marketing operations of the group. This year, the directors decided to diversify the group’s activities in order to reduce exposure in the oil and gas marketing industry. Non-controlling interest representing long-term investments have been made in two companies – an internet-based fashion distribution agent, and a chain of cosmetic stores. In the consolidated financial statements, these investments were accounted for as an associate and a joint venture respectively as Gyamfuwaah Limited is able to exert significant influence over the internet-based fashion distribution agency and entered into an agreement to jointly control the chain of cosmetic stores with its original sole owner. As part of their remuneration, the directors of Gyamfuwaah Limited receive a bonus based on the profit before tax of the group. In April 2010, the long standing group director of finance resigned due to a disagreement with the Chief Executive Officer (CEO) over changes to accounting estimates. A new group director of finance is yet to be appointed. Wassa Limited This company manufactures and distributes additives to lubricants. In July 2009, production was relocated to a new, very large factory. One of the conditions of the planning permission for the new factory is that Wassa Limited must, at the end of the useful life of the factory, dismantle the premises and repair any environmental damage caused to the land on which it is situated. Hausa Limited This company’s operations involve the manufacture and distribution of gas cylinders. The government paid a grant in November 2009 to Hausa Limited, to assist with costs associated with installing new, environmentally friendly packing lines in its factory. The packaging lines use gas as the only fuel. The company agreed to train fifty (50) previously unemployed young people each year for the first five years of operation in the conversion of all kinds of engines from using liquid fuel (diesel and petrol) to using gas as part of National Youth Employment Programme (NYEP) as the conditions of the grant, and they began operating in February 2010. Banda Limited This company is a new significant acquisition, purchased in January 2010. It is located in Liberia, an ECOWAS country, and has been purchased to supply iron ore, the main raw material for the gas cylinders produced by Hausa Limited. It is now supplying approximately half of the ingredients used in Hausa Limited’s manufacturing lines. Liberia has not adopted International Financial Reporting Standards, meaning that Banda Limited’s financial statements are prepared using the local accounting rules of Liberia. The company uses local currency to measure and present its financial statements. Further Information Your firm audits all components of the group in Ghana with the exception of Banda Limited, which is audited by a small local firm, Silver Associates, in Liberia. Audit regulations in Liberia are not based on International Standards on Auditing. 

Required: 

(a) Using the information provided, prepare briefing notes to be used in a discussion with your audit team, in which you evaluate the principal audit risks to be considered in your planning of the final audit of the consolidated financial statements for the year ending 30 June 2010. Ignore those risks that relate to reliance on another auditor. 

(b) Recommend the principal audit procedures that should be performed on the condition attached to the grant received by Hausa Limited

Answer rating: 100% (QA)

Brieng notes To Audit team Regarding The major audit risks associated with Tanor Associates consolidated financial statements for the year ended 30th June 2010 Introduction These brief notes summarize ... View the full answer