CASE STUDY$40$ marksREAD THE "REQUIRED" PART ON PAGE $6$ BEFORE YOU CONTINUE.BACKGROUND INFORMATIONYou are a trainee accountant at ISA Incorporated $(|$SA$),$ a registered firm of auditors with severaloffices spread over the country. ISA specialises in companies Ilisted on the Johannesburg StockExchange $($JSE$)$ in different industries. There have been no changes to JSE reportingrequirements in the past few yearsISA has been appointed as the external auditors for Eggcellent Poultry Suppliers Limited $($EPS$)$for the past three years. EPS is listed on the JSE since $2005$ andises in supplying podand speclalise anieutural$($chicken$)$ and eggs to various businesses. The company has numerous agricultural sitesprocessing plants in different parts of the country with their head ofice in Lanseria,Jahannesburg. EPS has a year end of February and uses IFRS as its financial reportingframework to account for poultry and eggs as biclogical assets according to lAS $41,$ Agricultureand IFRS $13,$ Fair Value Assessment. The company has been operating successfully forseveral years, building a reputation for high$-$quality products and reliable service. In the $2024$financial year, the company declared a loss for the first time in $20$ years.The loss is mainly attributable to an increase in costs for feed, higher interest rates, increasesin petrol, costs related to water disruptions and loadshedding. In addition, the company hasfaced significant challenges due to the outbreak of avian influenza or bird flu, which is a diseasecaused by infection with avian $($bird$)$ influenza $($flu$)$ type A virus, in the country. These virusesnaturally spread among birds worldwide and can infect poultry and other bird and animalspecies. The outbreak has led to increased mortality rates among poultry. supply chaindisruptions, and a decline in customer demand due to health concerns and the unavailability ofpoultry and eggs. To mitigate the impact of the bird flu outbreak, EPS has implementedenhanced biosecurity measures, such as the regular disinfection of facilities and vehicles, andstrict control measures to prevent the spread of the virus. In addition to the challengesmentioned above, it seems as if customers are struggling to pay their debts due to the currentnegative economic environment in South Africa, as the accounts receivables balance hasincreased significantly. EPS has numerous debtors and the accounts receivable balance in thestatement of financial position is material.To overcome some of its challenges, EPS has diversified its product range to include non$-$pouitry items, such as plant$-$based alternatives, to cater to changandstatements seems as it themalntaln revenue streams. Based on the nast veare gusumer preterencesnew product range contributes $20\%$ of the total revenue.As a JSE listed company, EPS complies with good corporate governance and therefore appliesmost recommended practices set out in the King IV Report The governing body is supportedby many committees, for example the audit committee which plays a crucial role in overseeingthe company's financial reporting processes, internal controls, and compliance with regulatory$|$TURN OVER$]$

requirements. The audit committee was appointed by the chief executive officer $($CEO$),$ Mike Cullen, and comprises of himself $($also the chairperson of the committee$),$ the chief financial officer $($CFO$),$ Dinah Maseko, who is a registered chartered accountant, and two farmers with valuable industry knowledge and insights into the agricultural aspects of EPS' operations, albeit with limited financial knowledge.

Whilst busy with the risk identification process as part of the planning stage of the audit of the $2024$ financial year, one of the other trainee accountants on the audit team, Roz Naidoo, discovered in one of the minutes of the meetings that EPS is considering changing its lawyers after they had a fall out regarding the outstanding fees payable to the lawyers. The lawyers claim that they have not been paid for additional services that they delivered. Roz did not want to see a possible job opportunity be missed and therefore did not discuss the matter with anyone else and immediately contacted her uncle who has a very successful law firm and told him about the change and the monthly fee amount they pay the current law firm. When confronted with the issue, Roz got scared and claimed that she did not share any information. Roz's uncle's law firm was subsequently appointed as the new lawyers of EPS.

The following inherent risks of material misstatement at the financial statement level were identified by Roz Naidoo:

The annual financial statements $($AFS$)$ may be materially misstated due to error as the going concern assumption might not be appropriate as indicated by going concern inherent risk factors such as increased expenses in feed, higher interest rates, petrol, loadshedding and the loss of sales due to the bird flu outbreak.

Due to the overwhelming going concern inherent risk factors identified, the AFS may be materially misstat