Described below are situations your firm met in the course of the external audit of four...

 

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Described below are situations your firm met in the course of the external audit of four unrelated clients for the year ended 31 March 2021. a) Amore Ltd (Amore) Amore's trade receivables at 31 March 2021 included £820,000 due from Bond plc (Bond). The finance director of Amore claimed that the contract with Bond involved the military and that Amore had signed a confidentiality agreement with Bond. He refused to provide any further information about the contract with Bond and refused permission for your firm to contact Bond to confirm the outstanding balance. No alternative audit procedures are available to establish the existence of the debt. Amore's total assets at 31 March 2021 were £30.0 million and profit before tax for the year then ended was £6.0 million. b) Bluebell Ltd (BB) The management of BB refused to provide your firm with written representations. They claim that written representations are unnecessary and are just a means by which your firm can avoid responsibilities over the audit. c) Cayfield Ltd (Cayfield) The external audit team from your firm is working on the current year's audit at Cayfield's head office. On each day of the audit, the audit team eats lunch, free of charge, with Cayfield's financial controller in the company's staff canteen. d) Dupong Ltd (Dupong) Dupong's financial controller unexpectedly caught Covin-19 near the end of March 2021. Dupong's directors have requested that Wendy Simpson, the audit senior assigned to the Dupong audit, assists the company with the preparation of its financial statements before the external audit starts. Requirements: 2.1 For the situations (a) and (b) outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each auditor's report. (8 marks) 2.2. For the situations (c) and (d) outlined above, identify and explain the threats to your firm's objectivity and independence. State any actions your firm should take in respect of these matters. Described below are situations your firm met in the course of the external audit of four unrelated clients for the year ended 31 March 2021. a) Amore Ltd (Amore) Amore's trade receivables at 31 March 2021 included £820,000 due from Bond plc (Bond). The finance director of Amore claimed that the contract with Bond involved the military and that Amore had signed a confidentiality agreement with Bond. He refused to provide any further information about the contract with Bond and refused permission for your firm to contact Bond to confirm the outstanding balance. No alternative audit procedures are available to establish the existence of the debt. Amore's total assets at 31 March 2021 were £30.0 million and profit before tax for the year then ended was £6.0 million. b) Bluebell Ltd (BB) The management of BB refused to provide your firm with written representations. They claim that written representations are unnecessary and are just a means by which your firm can avoid responsibilities over the audit. c) Cayfield Ltd (Cayfield) The external audit team from your firm is working on the current year's audit at Cayfield's head office. On each day of the audit, the audit team eats lunch, free of charge, with Cayfield's financial controller in the company's staff canteen. d) Dupong Ltd (Dupong) Dupong's financial controller unexpectedly caught Covin-19 near the end of March 2021. Dupong's directors have requested that Wendy Simpson, the audit senior assigned to the Dupong audit, assists the company with the preparation of its financial statements before the external audit starts. Requirements: 2.1 For the situations (a) and (b) outlined above, state whether or not you would modify the audit opinion. Give reasons for your conclusions and describe the modifications, if any, to each auditor's report. (8 marks) 2.2. For the situations (c) and (d) outlined above, identify and explain the threats to your firm's objectivity and independence. State any actions your firm should take in respect of these matters.

Answer rating: 100% (QA)

21 For situation a the auditor would most likely modify the audit opinion to reflect the fact that the existence of the debt has not been confirmed Th... View the full answer