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Question 1

You are a manager in the audit department of Dove & Co, responsible for the audit of the Sunshine Hotel Group (the Group), which has a financial year ending 31 December 2017. The Group operates a chain of luxury hotels and it is planning to expand its operations over the next three years by opening hotels in countries with increasingly popular tourist destinations.

You are about to start planning the Group audit for forthcoming year end, and the audit engagement partner has just sent the following email to you:

To: Audit manager

From: John Starling, audit engagement partner

Subject: Audit planning, the Sunshine Hotel Group

Hello

I attended a planning meeting last week for the Sunshine Hotel Group (the Group) with the finance director and a representative of the Group audit committee, at which we discussed business developments during the year and plans for the future. I have provided you with my notes from this meeting, as well as some background information about the Group, as I know this is the first time that you are managing the audit. I have also provided you with an extract from an email which I received this morning from the Group finance director.

Using the information provided you are required to make briefing notes for my use in which you:

(a) Evaluate the business risks facing the Group. (10 marks)

(b) Identify and explain the significant risks of material misstatement which should be evaluated as part of our audit planning. (10 marks)

(c) In respect of the email received from the finance director:

(i) Discuss the additional implications for planning the Group audit and explain any relevant actions to be taken by the firm, and (5 marks)

(ii) Recommend the planned audit procedures to be performed on the claim of $10 million, assuming that the audit team is given access to all relevant sources of audit evidence. (6 marks)

Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter = $1,500,000. You are in the process of establishing overall materiality for the client. Based on prior years, the client has a 10% decline in IBT from the 2nd quarter to the 3rd quarter. You also know that IBT in the 4th quarter increases by 25% over the 3rd quarter.

Required:

Determine the amount of overall materiality for the audit based on these preliminary amounts. (Round your answer to the nearest thousand value.)

Amount of overall materiality

Question 3 Scrap Limited is a company incorporated in Uganda that deals in the manufacture of steel and steel products. The company takes its corporate social responsibility very seriously and publishes social and environmental key performance indicators (KPIs) in a sustainability report, which is published with the financial statements in the annual report. Scrap Limited has decided that in the forthcoming annual report, the KPIs should be accompanied by an independent assurance report. The audit committee of Scrap Limited has approached your audit firm to provide this report. To help in the evaluation of this engagement you have been given an extract from the financial sustainability report. 30 June 2021 30 June 2020 CO, emissions (million tonnes) W 5 Number of serious accidents in the work place 12 Average annual spent on training per employee | Shs 150,000 Shs 120,000Question 1: (20 marks) Suppose you are a senior manager in Amex & Co, a small firm of Chartered Certified Accountants, which specializes in providing audits and financial statement reviews for small to medium-sized companies. You are responsible for evaluating potential assurance engagements, and for producing a brief report on each prospective piece of work to be used by the partners in your firm when deciding whether to accept or decline the engagement. Amex & Co. is keen to expand the assurance services offered, as a replacement for revenue lost from the many small-company clients choosing not to have a statutory audit in recent years. Dura Co has been an audit client of Amex & Co. for the past three years. The company owns and operates a chain of retail outlets selling pet supplies. The finance director of Dura Co. recently communicated with your firm to enquire about the provision of an assurance report. Required: You must need to understand this scenario before answering the question. Your answer must be tailored to the scenario. It is pointless, for example, to write about a general acceptance issue which is not specifically related to Dura Co. You need to discuss the importance of assurance services for Dura Co. Also classify assurance services that involve attestation and you will include in your report