You are currently busy with the audit of Wildschut Transport (Pty) Ltd (Wildschut). Your audit firm...

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You are currently busy with the audit of Wildschut Transport (Pty) Ltd ("Wildschut"). Your audit firm has been the auditors of Wildschut and its subsidiary since the company was established 15 years ago. They have a September financial year end and you are currently busy with the 2020 financial year end audit. Materiality for this audit was set at R1.5m. Wildschut provides transport services, as well as repair services to busses. All parts are imported for the repairs of busses. Wildschut is a subsidiary of the Golden Cloud Bus Company. Income decreased from 2019 to 2020. The net loss also increased from 2019 to 2020. Wildschut's financial results have been deteriorating for the past few years. The entity has been experiencing strong market competition. In addition, unexpected unfavourable exchange rate of the rand to the dollar negatively impacted financial results. The emphasis on these areas resulted in the cost of services. Wildschut increased their overdraft facility during the current financial year, they however managed to pay a portion of their long-term loan. The import taxes increased during the year and this led to an increase in the cost of services. There are talks that it will decrease in the future. They are currently investigating providing additional services to a group of schools to transport their scholars. The directors are excited about this and are convinced that the company will generate healthy profits from this opportunity. Wildschut is negotiating with a local supplier for the parts they use. The local supplier might be able to provide it at a lower price. The management of Wildschut is refusing the auditors access to the executive directors employee contracts as they are considered confidential. You have performed the following procedures as part of your completion of your audit work to determine whether any events took place after 31 September 2020 that may be applicable to the annual financial statements. You requested a management representation letter to confirm whether there are any legal claims and any pending claims made against Wildschut. Management have adjusted all the audit differences. Management approved the annual financial statements on the 30th of November 2020 and an unmodified audit report is dated 12 January 2021. The annual financial statements will be issued to members on 30 January 2021. On 21 December 2020, while listening to the radio, you heard the news of a huge explosion that took place at Wildschut. The incident happened after the year end. You contacted management immediately and asked to be kept up to date on any developments. Since management have already adjusted the financial statements for audit differences, they issued a management representation letter in which they declared that no claims have been made against Wildschut after year-end. On the 29th of December 2020 management shared the following with you in connection with the explosion: • Two busses were damaged and will have to be written off. • One staff member died and 3 were injured. • No dismissals of staff will take place even after the investigations. Two busses in general can generate about 9% of the turnover per annum. The carrying value of the two vehicles destroyed amounted to R 908 000 on 30 November 2020. • The insurance claim will result in a payout of R 810 000. Management still plans on issuing the original set of financial statements. . It also came to your attention that the staff who were injured always complained about the faulty busses. Oil and petrol leakages from the busses were 'nothing new'. After the issue of the audited financial statements, two former staff members made a claim against Wildschut for loss of income during July 2020, since they sustained injuries during work hours and consequently have been declared incompetent for work purposes. The claims amount to R 1.65m. Wildschut wants to appoint an internal audit department to assist with the control of the busses and cash movements related to the busses. In an attempt to keep the audit at an acceptable fee for upcoming audits, the partner who is responsible for the audit of Wildschut suggested that the auditors will place more reliance on the internal auditors. Required: 2.1 Evaluate the appropriateness of the going concern assumption of the financial statements of Wildschut Transport (Pty) Ltd of the year ending November 2020. (15 marks) 2.2 Discuss the further audit procedures you will perform in reaction to the events that came to your attention between 21 December 2020 and 29 December 2020. (20 marks) 2.3 Define key audit matters and discuss what is considered to be key audit matters. Provide examples from the scenario which, in your opinion, will be disclosed as key audit matters. (10 marks) 2.4 Describe aspects you need to consider when determining the nature and extent of work of the internal auditors that can be used. You are currently busy with the audit of Wildschut Transport (Pty) Ltd ("Wildschut"). Your audit firm has been the auditors of Wildschut and its subsidiary since the company was established 15 years ago. They have a September financial year end and you are currently busy with the 2020 financial year end audit. Materiality for this audit was set at R1.5m. Wildschut provides transport services, as well as repair services to busses. All parts are imported for the repairs of busses. Wildschut is a subsidiary of the Golden Cloud Bus Company. Income decreased from 2019 to 2020. The net loss also increased from 2019 to 2020. Wildschut's financial results have been deteriorating for the past few years. The entity has been experiencing strong market competition. In addition, unexpected unfavourable exchange rate of the rand to the dollar negatively impacted financial results. The emphasis on these areas resulted in the cost of services. Wildschut increased their overdraft facility during the current financial year, they however managed to pay a portion of their long-term loan. The import taxes increased during the year and this led to an increase in the cost of services. There are talks that it will decrease in the future. They are currently investigating providing additional services to a group of schools to transport their scholars. The directors are excited about this and are convinced that the company will generate healthy profits from this opportunity. Wildschut is negotiating with a local supplier for the parts they use. The local supplier might be able to provide it at a lower price. The management of Wildschut is refusing the auditors access to the executive directors employee contracts as they are considered confidential. You have performed the following procedures as part of your completion of your audit work to determine whether any events took place after 31 September 2020 that may be applicable to the annual financial statements. You requested a management representation letter to confirm whether there are any legal claims and any pending claims made against Wildschut. Management have adjusted all the audit differences. Management approved the annual financial statements on the 30th of November 2020 and an unmodified audit report is dated 12 January 2021. The annual financial statements will be issued to members on 30 January 2021. On 21 December 2020, while listening to the radio, you heard the news of a huge explosion that took place at Wildschut. The incident happened after the year end. You contacted management immediately and asked to be kept up to date on any developments. Since management have already adjusted the financial statements for audit differences, they issued a management representation letter in which they declared that no claims have been made against Wildschut after year-end. On the 29th of December 2020 management shared the following with you in connection with the explosion: • Two busses were damaged and will have to be written off. • One staff member died and 3 were injured. • No dismissals of staff will take place even after the investigations. Two busses in general can generate about 9% of the turnover per annum. The carrying value of the two vehicles destroyed amounted to R 908 000 on 30 November 2020. • The insurance claim will result in a payout of R 810 000. Management still plans on issuing the original set of financial statements. . It also came to your attention that the staff who were injured always complained about the faulty busses. Oil and petrol leakages from the busses were 'nothing new'. After the issue of the audited financial statements, two former staff members made a claim against Wildschut for loss of income during July 2020, since they sustained injuries during work hours and consequently have been declared incompetent for work purposes. The claims amount to R 1.65m. Wildschut wants to appoint an internal audit department to assist with the control of the busses and cash movements related to the busses. In an attempt to keep the audit at an acceptable fee for upcoming audits, the partner who is responsible for the audit of Wildschut suggested that the auditors will place more reliance on the internal auditors. Required: 2.1 Evaluate the appropriateness of the going concern assumption of the financial statements of Wildschut Transport (Pty) Ltd of the year ending November 2020. (15 marks) 2.2 Discuss the further audit procedures you will perform in reaction to the events that came to your attention between 21 December 2020 and 29 December 2020. (20 marks) 2.3 Define key audit matters and discuss what is considered to be key audit matters. Provide examples from the scenario which, in your opinion, will be disclosed as key audit matters. (10 marks) 2.4 Describe aspects you need to consider when determining the nature and extent of work of the internal auditors that can be used.

Answer rating: 100% (QA)

Answer to Part 21 Evaluation of appropriateness of Going Concern Assumption SA 570 of the Financial ... View the full answer