You are an Audit Supervisor working at the audit firm Tulipan LLC, the appointed auditor of the company Primavera Co. Ltd for the financial year ended 30 September 2021. It has been a client of your audit firm for the past 3 years. Founded several decades ago by family members, Primavera Co. Ltd has grown significantly from a private company limited by shares to a company listed on the Stock Exchange of Peonía. However, the family members have still retained the majority of shares.

The shareholders seek to achieve long-term capital appreciation. They appointed the Chief Executive Officer, a qualified professional who is independent from the operations and family members of Primavera Co. Ltd. The Chief Executive Officer has the following targets: (i) maximise revenue to reach Rs 20 million, and (ii) maximise profit to attain Rs 6,5 million. Upon successfully accomplishing these goals, the Chief Executive Officer will be rewarded in monetary terms.

Primavera Co. Ltd is a supermarket chain with various outlets strategically located across Peonía – one in each city, and others in remote areas. The company is striving to be more sustainable and therefore, promotes products made locally while importing those not available. Primavera Co. Ltd actively engages with local farmers to sell fresh meat, poultry, fruits and vegetables. These information are readily available on the company’s website.
To ensure compliance with regulatory bodies, Primavera Co. Ltd has the following structure in place:

You are currently planning of the audit of Primavera Co. Ltd. It has come to your attention that some of your colleagues either have shares in the client or have family relatives working for them both directly and indirectly. A non-executive director in the Audit Committee has recently submitted her resignation. As a result, Primavera Co. Ltd has expressed their interest in appointing the independent review partner on the audit engagement to replace the non-executive director on a temporary basis. Tulipan LLC has also been requested to assist Primavera Co. Ltd to recruit a permanent new one. Considering its size and the amount of resources allocated to its audit, the income received from the audit of Primavera Co. Ltd accounts for more than 15% of the total revenue of Tulipan LLC.

Question 1
a) Identify THREE (3) internal and THREE (3) external stakeholders of Primavera Co. Ltd.
b) Explain how the agency theory applies in this case. 

Question 2
a) As part of the audit plan, identify TWO (2) threats to professional of code of ethics.
b) Explain how these threats may affect the audit of Primavera Co. Ltd.
c) Elaborate on the safeguards you need to implement as an auditor to avoid or reduce these threats to an acceptable level. 

Question 3
a) Based on the information provided, identify THREE (3) information that would help you to obtain an understanding of Primavera Co. Ltd.
b) Explain THREE (3) ways in which the above information can be obtained.
c) Provide FOUR (4) reasons why the audit planning of Primavera Co. Ltd is important. 

Answer rating: 100% (QA)

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