CASE Part 1 Aries LLP ("Aries") is a mid-tier local audit firm. Aries was recently appointed to conduct the first annual audit for Lancet Pte Ltd ("Lancet" or the "Company") for the financial year ended 30 June 2022. You are the audit manager assigned to the engagement. Lancet is a Singapore-based bio-technology start-up. Founded 6 years ago by two medical scientists while pursuing their PhDs, Lancet focuses on providing clinical diagnostic tests and offers a diverse portfolio of solutions for testing a wide range of diseases. Following the success of its first rapid test kit for detection of cancer cells in early 2022, the Company has attracted the attention of a number of potential investors. The Chief Executive

Officer ("CEO") is hoping to raise S$30 million from Series A funding by December 2022.

Part 2 As the audit progresses, the audit team list their key findings as follows: (1) Unit price in three sets of invoices did not match and was significantly less than the unit price in approved price list. All three invoices were billed to a major customer at different times of the year based on the delivery dates of the test kits. Upon enquiry, the sales manager, explained that the unit price was finally agreed with the customer after a protracted period of negotiation. Although he had forgotten to sign on the invoices at the point of billing, he was able to show you an email from the CEO approving the final unit price and to close the sale with the customer. (2) In October 2021, a customer, Miss Lye, transferred $600 into the bank account of Lancet's sales executive via PayNow when she made an urgent trip to Lancet's office to collect a box of test kits she had pre-ordered from Lancet's office. Miss Lye had had forgotten to bring her purse that day and had insisted on paying and collecting the items as she did not want make another trip to Lancet's office. Upon receipt of the funds, the sales executive wrote a cheque for the same amount and banked it into Lancet's bank account the next day. (3) A review of Lancet's two insurance policies revealed that the named beneficiary is an unrelated third-party entity. (4) Annual bonus amounting to $800,000 for the financial year ended 30 June 2022 was paid to the employees on 20 July 2022. A corresponding $120,000 relating to Central Provident Fund ("CPF") contributions was paid out on 15 August 2022. Bonus accruals as at 30 June 2022 was $820,000. (5) In March 2022, Lancet's office suffered a black-out for 48 hours before electricity supply is restored. The test-kits are temperature sensitive and must be kept in a cool environment, A review of the temperature datalog showed that the room recorded an increase of close to 10 Celsius prior to the restoration.

Part 3 In addition to the annual audit, the board of directors ("BOD") of Lancet asks if your firm, upon the completion of the annual audit, is able to assist in preparing a strategy paper comprising a business plan and a 3-year financial projection for these investors. Since the audit team would have been very familiar with the Company's business after spending a few months auditing the Company, the BOD is of the view that Aries will be able to better determine key parameters such as growth rate, burn rate, capital expenditure and R&D needs, in the projections.

Question 1 Explain why it is important for the audit team members to understand the regulations impacting Lancet's operations in addition to understanding the regulations governing the audit profession.

Question 2 (a) Analyse the information provided in Part 1. Indicate six (6) risk considerations comprising three (3) business risks relating to Lancet and three (3) risks relating to the audit engagement. For each risk you have identified, discuss why it is relevant to your annual audit engagement. You are not required to state regulatory risk as part of your answer as this has been discussed in Question 1.

(b) Illustrate one (1) audit procedure or mitigating action Aries should take to address each risk.

You are encouraged to present your answer in the following format: (a) (b ) Three (3) business risks Why the identified risk is One (1) audit procedure / relating to Lancet relevant to your annual mitigating action to address audit engagement each risk Three (3) risks relating to Why the identified risk is One (1) audit procedure / the audit engagement relevant to your annual mitigating action to address audit engagement each riskYou are encouraged to present your answer in the following format: Findings (a) (b ) One (1) Implication that may arise from the One (1) management assertion at finding RMM One (1) Affected account (1) (1i) (iii) (iv) (v)