You are the group audit manager responsible for the audit of C-Group for the year ended 31

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Question:

You are the group audit manager responsible for the audit of C-Group for the year ended 31 December 2020. Mr. Chan is the Chief Financial Officer (CFO) of C-Group. Mr. Chan works closely with Mr. Lee, the Chief Executive Officer (CEO) of C-Group. Mr. Lee plans to expand C-Group as quickly as possible to demonstrate his ability to his father, the founder and one of the major shareholders of C-Group.

Additional information (1)

C-Group owns residential apartments to generate rental income. Until 31 January 2020, one of the apartments was rented for $55,000 a month to a tenant. Since 1 February 2020 it has been occupied rent-free by Mr. Chan as non-monetary housing benefit from C-Group. Besides, C-Group has been leasing its head office from Mr. Lee’s father since operation and they considered the terms and conditions are at arm’s length.

C-Group, which comprises a parent company (C-1 Company) and two subsidiaries (C- 2 Company and C-3 Company) as a group. Each subsidiary contributed to the group’s 20% of revenue and are audited by another reputable well-known audit firm, Lee & Lee Co. (“Lee & Lee”).

Additional information (2)

Recently, you received the draft audit report on C-2 Company’s financial statements. It was a qualified except for opinion since there was a disagreement on the provision of trade receivables. C-2 Company’s management considered there was no impairment loss foreseeable, while Lee & Lee’s auditors concluded there was a need for such provision.

Requirements:

a) Describe five important matters that you should consider when you know the additional information (1) and state the relevant audit evidence that you expect to find in undertaking your review of the audit working papers and financial statements of C-Group in relation to those matters that you described.