• You are the Quality Control Partner in BDO Raffles LLP, a firm of chartered accountants. You are currently reviewing a sample of the audit files of four audit clients. Your aim is to ensure that the quality of audit work at least matches and, if possible, exceeds the minimum standard required under the international auditing standards and Singapore legislation. You have made the following list of items that cause you concern: • In Alpha Ltd, accurate inventory records had not been maintained during the year; however, from the tightly controlled year-end inventory count and detailed analysis of gross profit margins, the audit team is reasonably confident that the inventory account is free from any error. The audit manager had suggested not to modify the auditor’s report. • In Beta Pte Ltd, the depreciation policy writes off motor vehicles over ten years whereas most companies in the industry use estimated lives of between four and six years. Allison consistently reports losses on the disposal of motor vehicles. Under the existing policy, the depreciation charge per annum is about $5m and net profits have averaged about $4m, with reported sales of $20m. Somerset’s books show an outstanding loan of $10m which is repayable in two years’ time. One of the terms in the loan covenant is a requirement for Somerset to maintain a profit margin of 5% each year. No alternative audit procedures were available to establish the level of error that may have arisen in the financial statements as a consequence of the replacement system.
• Required: Evaluate the situation in each of the four cases and suggest an appropriate course of action in each including if necessary modifying the auditors’ report.

Answer rating: 100% (QA)

ANS WER In the case of Alpha Ltd the audit team is reasonably confident that the inventory account i... View the full answer