You are in charge of the audit of Lennon plc. Lennon plc manufacture components for use in personal computing devices, including mobile ‘phones and tablet computers. The company is based in the UK and operates in both domestic and international markets: these international markets include Asia and North America.

The company’s original manufacturing site is in Dundee, UK. Several years ago, Lennon plc invested in two further manufacturing facilities in Katowice, Poland and Phoenix, US, respectively. These manufacturing facilities required a combined investment of £31m.

Recently, Lennon plc acquired another company, Gerrard Ltd. Gerrard Ltd did not own any tangible non-current assets. Rather, it owned several copyrights and had intellectual property that is important in the personal computing devices sector.

Lennon plc applies IFRS. It’s expansion into North America means that it has had to apply US GAAP to the financial statements of its US subsidiary.

Duff LLP have recently been appointed as the statutory auditor of Lennon plc. The previous auditors resigned due to a disagreement over the treatment of several accounting items. Duff LLP see Lennon plc as a potential source of substantial consultancy fee income.

Required:

Critically discuss the types of risk that are apparent in the audit of Lennon plc. Your response should include a critical discussion of business risk, the risk of material misstatement and audit risk.

Answer rating: 100% (QA)

There are three common types of audit risks which are detection risks control risks and inherent ris... View the full answer