The Pepper Group is an international business, made up of ten subsidiaries and a head office....

 

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The Pepper Group is an international business, made up of ten subsidiaries and a head office. You are the manager in charge at the firm undertaking the group audit, but there are separate local auditors for the Cayenne subsidiary in the United States, the Habenaro subsidiary in Mexico and the Hybrid subsidiary in Columbia. You are aware of the following information: (1) Hybrid is a loss-making subsidiary, with losses at the current year end totalling $2.7 million. There are significant control problems, high levels of bad debts and 25% staff turnover. The local auditors have already stated their intention to give a qualified opinion for the year just ended because of the material issues found. (2) Cayenne is operating to a different financial year to that of the group as a whole, being October 20X1 rather than December 20X1. (3) Shortly after the year end, in January 20X2, the Pepper Group announced the sale of Habenaro for $25 million and this disposal is currently underway. (4) The Pepper Group is guaranteeing loans of approximately $10 million for its subsidiaries. Required (a) Set out how you would plan and control the group audit of the Pepper Group. (b) Consider the impact of each of the above issues on the group audit. (c) Explain the nature of the relationship between your firm and the auditors of the subsidiaries, making particular reference to the extent to which your firm may rely on the component auditors' work and to the considerations involved where joint audits are conducted. The Pepper Group is an international business, made up of ten subsidiaries and a head office. You are the manager in charge at the firm undertaking the group audit, but there are separate local auditors for the Cayenne subsidiary in the United States, the Habenaro subsidiary in Mexico and the Hybrid subsidiary in Columbia. You are aware of the following information: (1) Hybrid is a loss-making subsidiary, with losses at the current year end totalling $2.7 million. There are significant control problems, high levels of bad debts and 25% staff turnover. The local auditors have already stated their intention to give a qualified opinion for the year just ended because of the material issues found. (2) Cayenne is operating to a different financial year to that of the group as a whole, being October 20X1 rather than December 20X1. (3) Shortly after the year end, in January 20X2, the Pepper Group announced the sale of Habenaro for $25 million and this disposal is currently underway. (4) The Pepper Group is guaranteeing loans of approximately $10 million for its subsidiaries. Required (a) Set out how you would plan and control the group audit of the Pepper Group. (b) Consider the impact of each of the above issues on the group audit. (c) Explain the nature of the relationship between your firm and the auditors of the subsidiaries, making particular reference to the extent to which your firm may rely on the component auditors' work and to the considerations involved where joint audits are conducted.

Answer rating: 100% (QA)

a Planning and Controlling the Group Audit of the Pepper Group To plan and control the group audit of the Pepper Group the following steps should be undertaken Understanding the Group Structure Gain a ... View the full answer