1) BRADLEY:

a) Quality, Ethical and other issues::

Provisions:
First comment mad eby the audit assistant shows that audit of provision has not been proper;y
carried out as it would seem that sufficient, appropriate audit evidence has not been obtained
to conclude that provsions are fairly stated.

Finance director sttament of not approaching the company legal adviser shows placing a
limitation on the evidence which can be obtained.
In addition, the finance director is a dominant personality due to his role of FD and could have
used his seniority to intimaidate the audit assistant.

Situation shows that the finance director may be trying to hide something and professional
scepticxism should be excercised. Possiblly the FD knows the full amount of liability that exceeds
$10,000 and may be reulctanat to recognize it fully or may be legal adviser are aware of other
provsions which should be included in the financial sttaments which are not being recognized.

Key risk for provision is understatement so the audit team should nor readily accept the FD
assement of $10,000 and audit team should challenge it for adequacy and ask for written
evidence from legal advisers.

It is also concerning that audit manager told audit assistant to conclude on the audit work when
the planned procedures has not been performed. This does not provide good direction to the
audit team and increases audit risk.

There could be a material misstatement if the provision is significantly undersatated and there is
not sufficient audit evidence on the audit file to support this conclusion.

Overall Review:
Requiremnet of ISA 520 is to perform analytical procedures at the review stage of the audit
and its objective is that auditor should design and perform analytical procedures at the end of
audit which assist him when forming opinion as to whether the F/S are consistent with auditor
undersatdning of the entity.

It is unlikely that “Quick Look” at F/S is adequate to meet ISA 520 and audit documentation
seem to be inadequate. If the audit manaer and audit assistant do not perform detailed
analytical review on completion of audit there is a breach of ISA 520. Failing to perform
analytical review culd mean that further errors are not found.
The lack of final analytical review increases audit risk, as barley is a new client so detection risk is
higher than for longer standing audit engagement where audiot has developed the comluative
knowledge of the audit client.

The fact that audit manager has suggested that detailed review is not necessary shows lack of
knowledge and understanding of ISA requirement, low risk does not negate the need for
analytical review.

Despite that the analytical review was not performed which could be due to time pressure and
the manager should be questioned about his instruction and given further traning over this
matter.

Chair Statement:
Final issue relates with chari statement that audit manger has discussed this statmnet with the
FD does not necessarily mean that manager had read it for the purpose of identifying material
mistatment and it might have not read at all.

AS ISA 720 the auditor responsibilities relating to other information requires that the audiot
shall read other infomraiton to identify material inconsistencies if any with the audited F/S.

There is no audit documentation to show the audit manager statement. The manager needs to
be asked exactly what work has been done and what documentation exists. AS there is a breach
of ISA 720 requirements then the necessary pricedures should be performed before the auditor
report is issued.

The situation shows lack of knowledge of the ISA and a possible short cut is being taken
probably due to time pressure.

b) Evaluation of uncorrected
misstatements:
ISA 450 Evaluation of mistaatemnt identified during the audit: requires during the
completion stage of the audit, the effect of uncorrected misstamtne must be evaluated by the
auditor.

In the event that management refuses to correct some or all of the misstatements
communicated by the auditor, ISA 450 requires that the auditor shall obtain an understanding of
management’s reasons for not making the corrections and shall take that understanding into
account when evaluating whether the financial statements as a whole are free from material
misstatement.
ISA 450 also requires that the auditor shall communicate with those charged with
governance about uncorrected misstatements and the effect that they, individually or in
aggregate, may have on the opinion in the auditor’s report.

Share‐based payment scheme:

Tarika:
1- Materiality

RAP ka mnemonic prha tha R=revenue=2%, A=Assets=1%, Profit= 0.5%

2- IAS/ISA kya kehta ha

3- Corrected adjustment

The adjustment in relation to the share‐based payment scheme is material individually to

the statement of profit or loss, representing 12% of revenue. It represents less than 1% of
total assets and is not material to the statement of financial position

IFRS 2 Share‐based Payment requires an expense and a corresponding entry to equity to be

recognised over the vesting period of a share‐based payment scheme, with the amount
recognised based on the fair value of equity instruments granted

Management’s argument that no expense should be recognised because the options are
unlikely to be exercised is not correct

IFRS 2 says fall in market price is a market condition so in determining the expense it is not
relevant.

Management should be requested to make this necessary adjustment to recognize expense

and entry to equity otherwise there would be consequencies for the auditors opinion.

Restructuring Provision:
e adjustment in relation to the provision is material to the statement of profit or loss,
representing 2% of revenue. It represents less than 1% of total assets so is not material to
the statement of financial position

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that for a
restructuring provision to be recognised, there must be a present obligation as a result of a
past event, and that is only when a detailed formal plan isin place and the entity has started
to implement the plan, or announced its main features to those affected.

A board decision isinsufficient to create a present obligation as a result of a past event. The
provision should be recognised in May 20X5 when the announcement to employees was
made.
 managementshould be informed that the accounting treatment of the provision is a
material misstatement, which if it remains unadjusted will have implications for the
auditor’s opinion.

c) Impact on auditor’s report:

The audit opinion must be modified when the auditor concludes that the financial statements
as a whole are not free from material misstatement.

the auditor must consider whether any uncorrected misstatements are material, either on an
individual basis, or in aggregate.

In aggregate, the misstatements have a net effect of $250,000 ($300,000 – $50,000), meaning
that if left unadjusted, profit and the statement of financial position will be overstated by
$250,000. This is material to profit, at 10% of revenue, but is not material to the statement of
financial position at less than 1% of total assets

the management should be requested to make these adjustments in order to avoid a modified
opinion. The type of modification depends on the significance of the material misstatement.

misstatements in aggregate are material to the financial statements, but are unlikely to be
considered pervasive even though they relate to a number of balances in the financial
statements as they do not represent a substantial proportion of the financial statements. This
is supported by the fact that the adjustment is not material to the statement of financial
position. It is therefore unlikely that the auditor will conclude that the financial statements as
a whole are misleading

A qualified opinion should be expressed

auditor stating in the opinion that except for the effects of the matters described in the basis
for qualified opinion paragraph

The basis for qualified opinion paragraph which is positioned immediately after the opinion
paragraph, should contain a description of the matters giving rise to the qualification. This
should include a description and quantification of the financial effects of the misstatement.
 2- JANSEN CO:
QUALITY MANAGEMNET ISSUES WITH REPECT TO AUDIT SUPERVIOSRS EMAIL :

ISA 220 Quality Management for an audit of financial statmnets requires te auditor to implement
quality management procedures at the engagement level which rpivide reasonable assurance that the
audit complies with professional standards and applicable regulatory requiremnert that the aduitors
report is appropriate in the circumstances.

Overall quality of audit is the responsibility of the audit engagement partner and effective engagement
performance includes adequate direction, consultation , supervision and review.

Share Based Payment Scheme:

The failure to identify new cash settled share based payment shceme as a potentially high risk area
indicates inadequate planning and a lack of consulation with the client.

IT is complex and judgemnetal area and given tahat the scheme was intoroduced in thish year so it
should have been indentified as a key risk area.

Assignemnet of part qualified supervisor to the aduit of listed entity is also indicative of poor audit
planning. The audit supervisor appearws to have inadequate skills and expertise to audit thish public
interest entity. Thish is evidence by the incorrect treastmen tof share based opayment schem an the
audit supervios comment that basing the expense in the profit or loss account on that valuation at the
date of grant is approporate and that the recognition of an equity reserve in the statement of financial
position is correct in the email to the audit manager.

AS per IFRS 2 share based payments, the valuation of share appreciation rights for
cash settled scheme should be updated at the reporting date and the standard requires recognition of
the comulative cost as a liability not as an equity reserve.

The audit supervisor also fails to recognize that a share based payment sheme with the director
consitiues a related party transaction as per IAS 24. While the cost of the scheme this year of $195,000
is immaterial on a quantitiatibe basis i.e. 0.34% of PBT and 0.84% of total assets, as a related party
transaction with directors scheme should be considered material by nature.

Threrofre it should be fully disclosed in the notes in accordance with IAS 24.

Other quality issues:

 It is clear that audit manager should have been replaced earlier and that jansen co has failed to
provide adequate diretction and supervision of the audit.
 Jansen co aslo fails to monitor the progress of the audit therefore to update and change the
audit plan as necessary during the cours of the audit as required by ISA 300 planning an audit of
F/S., This is evidnced by the fact that the audit clearance meeting is scheduled for next week and
the intial manager review is only just taking place.
 No evidence of engagnemnt partner oversight over the course of the audit fieldwork and it is
the engagmnnt partner’s responsibility to ensure they have reviewd the documentation to esure
sufficient appropriate eviden as been obtained and the auditors report issued in the
circumstances is appropriate.
 Lack of audit evidence in relation to the frim of external valuers which has been used to va;ue
the share options. ISA 500 Audit evidence requires the audito to obtain
sufficenient and appropriate audit evidence tat the valuation work performed by the
management expert is adequate for the purposes of the audit.
 The auditor must therefore evaluate whether management expert posessess the necessary
competence, capabilities and objectivity to perform the valuations and whether the scope of
their work is satisfactory for audit purposes. Checking out of expert via online is lclealry
inadequate for audit purposes and this again reflects the inexperience and lack of expertise of
the audit supervisor and possr audit planning with repsect to staffing on the audit.
 Welford Co

Audit partner rotation:

 Has been actining as audit engatment partner for 8 years as co is a tisted co this goes againsts
the code of IESBA which tells that E.P shall not act more than seven years
 Self interst threat to auditor objectivity, firms judgemnet is affected by concern over losing long
standing client.
 There may also be familiarity threat due to close relationship, partner ceases to exercise
professional skepticism impacting on audit quality
 E.P should be replaced as soon as possible.
 Firm does not have appropriate policies and procredures, and should review its monitoring of
length of time of E.P act for client is operating effectively and make any necessary
improvements to internal controls to ensure compliance with ISQM 1.
 Tutorial note:
Code allows an additional year if continuity is especially important to audit quality
and threat to independence has been reduced to an acceptable level.

Supervision and Review:

 Two hours for audit work is not sufficient time for E.P to perfromo duties adequately.
 E.P is required to take overall responsibility for the supervision and performance of the
audit, should spent appropriate time in review of audit working papers to be satisfied
that sufficient and appropriate eviden had been obtained.
 Instead it appears that it has performed by newly promoted audit manager, not have
necessary experience, may be insufficient evidence to support audit opinior or
inappropriate evidence has been obtained.
 Issue of Delegation of work: possibly some of the review of the audit working papers
could have been delegated to someone other than audit partner for this senior manager
is an appropriate person.
 Compare their time i.e. 6 vs 30
 A total of overall time of 173 hours not seem suffient for audit of a listed entity
 Audit quality have been impacted by inadequate time spent in planning and performing
the audit work.

Special Investigastion:

 Insufficient documentation as to the nature of this non audit work, could relate to non audit
service which is not allowed for public interest entity.
 Code prohibitis audit firm to provide non assurance service to a listed entity as lack of
documentation means breach of ethical requiremnts.
 The fact that $890,000 is a substantial engagement for this non assurance work so inadequate
documentation is a cause of concern.
  Possibility of no work has been performed, would be a very serious issue and could be perceived
as a bribe so should be investigated with urgency.
 There is also a self interest threat due to the monetary value of service provided shoes E.P
attention to be on this non assurance service rather than on audit aa its value is substantial as
compared to audit fees.
 Depending on the nature of the other work performed there would be potentially self review
and advocacy threat.
 Non audit fees are so high would create bigger intimidation threat because it form a larger part
of the firm income and the audit firm may not be objective due to the fear of loss of client.
 Firm should ensure that its policies and documentation on engagement acceotabce are
reviewed and made more robust if necessary.

Engagement Quality Review:

 As this is a listed audit client so engagement quality review should be perofmed. It is not clear
that whether this took place or not and no time has been recorded for this review.
 If Pre issuance review was carried out then it should picked up these problems prior to the
audit opinion being issued.

Audit of Going Concern:

 Audit work has been delegated to audit assistant who does not have necessary skill and
experience.
 Especially concerning that going concern was identified as a significant audit risk and work
involves judgement to evaluate information relating to contract performance.
 Should have been performed by a more senior member i.e. audit mamnager who is able to
exercise professional skepticism and to challenge management where necessary.
 Audit work has been based on a review of contracts selected by managemen.
 First, only 5 contracts were reviewed but co is typically working on 20 contracts at one time, so
it is likely that coverage of audit work was insufficient.
 Sample selected based on the auditors evlaution of the risk associated with each contranct and
their materiality.
 Second, management may have selected better performing contracts to review creates a false
impression leading to an inapprprate conclusion on going concer.
 challenge managent on the selection of these contracts.
 Work performed seems inapproiate and insufficient places too much reliance and lack of
understanding of the firm data analytics tool.
 Simply using data analytics tool to check mathematical accuracy is insufficient testing on these
key documents.
 Assumptions should not just agree with previous year in a situation of increasing economic
uncertainity they should be challenged.
 Data analytic tool could have been used more appropriately i.e. to perform sensitivity analysis
which allowed for identification of areas of concern or requiring further investigation.
  Mary only spent eight hours on this critical area of the audit work again demonstrates the over
reliance placed on this tool, staff require further training in the use of and interpretation of
evidence generated in this way.

Audit Committee:

 Audit committee does not raised concerns about the provision of non audit service and the
length of time which bob served as audit engagement partner.
 One of the roles of audit committee is to oversee ethical issues relating to the external
auditor and to be involved with the engagement of external providers.
 Firm should ensure that these matters are discuees with the audit committee so that further
ethical issues does not arise in the future.

Conclusion:

From the discussion above it can be seen that bob Newbold has ignored his responsibilities as
engagement partner and firm needs to discuss with him, consider further training or possibly
taken disciplinary action against him.

Firm need to implement procedures to ensure that work is carried out by the appropriate level o
personnel with appropriate experience and training should be given to audit team about the
sampling that it cannot be pick by client, it is to be selected by the audit team in accordance
with audit firm’s methodology and sampling tools and also training should be provided about
appropriate use of data analytics tool as a basis for obtiaining audit evidence.

Macau and Co

From master file PDF page is 16.

Forsythia Group

Engagmet Quality Review is need to be performed as per ISQM1 as entity is a listed entity.(1 Mark)
Acquisition of Robin Co

the acquisition of a subsidiary after the year end is a significant non‐adjusting event in respect of which
no adjustmentis needed to the financialstatements, but disclosure should be made in the notes

Given that the subsidiary is forecast to increase Group revenue by 20%, it appears that the acquisition is
material to the financial statements and audit procedures should be performed to determine and
conclude on the disclosures necessary.

The audit engagement partner’s statement could indicate a concerning lack of knowledge or could be
due to the apparent cost constraints on the audit, encouraging them to cut back on necessary audit
work

Due to this cost pressure, the audit engagement partner could be failing to apply an appropriate level of
professional scepticism by agreeing with the CFO and failing to challenge this assertion.

As it is an audit partner who is at fault here, this suggests potentially wider quality risks within the audit
firm, with implications for the quality of other audits performed by this audit partner.

Audit planning should be revisited as the audit progresses. . According to ISA’s the auditor shall update
and change the overall audit strategy and the audit plan as necessary during the course of the audit

Audit procedures need to be performed as a matter of urgency to ensure that the audit team has
sufficient and appropriate audit evidence with regard to the acquisition.

If the Group CFO is planning not to disclose information, this could indicate a lack of competence, or a
deliberate intention to omit the necessary disclosures which would indicate a lack of integrity.

this increases the level of audit risk, and further audit work may be needed with regard to other areas of
the financial statements, such as reviewing the minutes of board meetings or correspondence with legal
advisers.

If the necessary disclosures are not made in the Group financial statements, a material misstatement
would exist, with implications for the auditor’s opinion on the Group financial statements.

The issue should be discussed with the Group audit committee once relevant audit procedures have
been performed.

Delegation of audit work to Camelia Associates

It is not prohibited for audit work to be delegated to other audit firms. However, the evidence obtained
should not just be accepted without proper review and the audit work of Camelia Associates cannot
simply be relied upon

It is required for the audit engagement partner to review the audit documentation and discussioen with
the engagement team that sufficient and appdorpirate evidence has eben obtained.
Without proper review the engagement partner cannot consider whether the evidence obtained has
been performed in accordance with the audit plan or whether it is sufficient and appropriate to support
the audit opinion.

Delegating the audit of revenue is particularly problematical given that the Group’s revenue has
increased significantly, by 14.2% this year. Camelia Associates may bot have appropriate knowledge and
understanding of the group to perform good quality work on this specialized and signifant area of the
audit.

They may also not have sufficient resources to have performed the work to a good quality.

Camelia Associates is a firm of accountants – this does not necessarily mean it is a registered audit firm,
and they may not be competent to conduct audit work, which increases the level of concern over the
quality of audit evidence which has been obtained in respect of the Group’s revenue.

Further assessment of the competency and qualifications of the staff should be undertaken and to
ensure that it is a registered firm of auditors.

Finally, ISA 240, s requires the auditor to work on the presumption that there are risks of fraud in
revenue recognition. Therefore, revenue is usually approached as a high‐risk area of the audit, so the
delegation of audit work in respect of revenue is likely to be inappropriate.

Development expenditure:

Confirming that a set of management assumptions agrees to the assumptions from another source does
not provide evidence on the validity of the assumptions themselves.

Insufficient audit evidence has been obtained relating to the capitalised development expenditure.
Further audit procedures need to be performed in order for the auditor to conclude on the
appropriateness of the accounting treatment applied,

ISQM 1 requires that individuals are assigned to perform activities within the system of quality
management who have appropriate competence and capabilities, including sufficient time, to perform
such activities.

In this situation, assigning the audit of development expenditure to a junior member of the audit team is
not appropriate.

Yew Co:

Based on the draft financial statements, Yew Co represents 13% of Group assets and 5% of Group
revenue and based on the prior year financial statements, Yew Co represented 18% of Group assets and
5.7% of Group revenue in the previous year.

ISA 600 suggests that when considering which components should be visited for work to be performed,
the firm should consider events or conditions that give rise to risks of material misstatement, t, the size
of the component relative to the Group, and components in which significant changes have taken place.

the reduction in the value of its assets of 27.1% is unusual and significant. Additionally, the operations of
Yew Co are in the agricultural industry. This is a specialised industry and different from the main
operations of the Group, it should have been visited for audit work to be performed.
It is concerning that Yew Co was not identified assignificant in the previous year, when based on
monetary values alone its assets made it significant to the Group. The rationale behind this need to be
investigated and additional work may need to be perfomed , including the engagement of the
consultant, cost involved should not be regarded as a deterrent.

ISA 300/ISA (UK) 300 requires that any significant changes to the audit strategy or audit plan, including
reasons for the changes, should be fully documented.

Conclusion:

Yeh laazmi likhni ha iska aik number hota ha bhaai.

SUMMARY OF POINTS OF QUALITY MANAGEMENT:

 Have ISA’s have been followed.
 Has the work been allocated to the appropriate level of staff?

Instead it appears that it has performed by newly promoted audit manager, not have necessary
experience, may be insufficient evidence to support audit opinior or inappropriate evidence has
been obtained.

Issue of Delegation of work: possibly some of the review of the audit working papers could have
been delegated to someone other than audit partner for this senior manager is an appropriate
person.

Assignemnet of part qualified supervisor to the aduit of listed entity is also indicative of poor
audit planning. The audit supervisor appearws to have inadequate skills and expertise to audit
thish public interest entity. Thish is evidence by the incorrect treastmen tof

 Has the audit been time pressured?

Detection risk increases

 The situation shows lack of knowledge of the ISA and a possible short cut is being taken
probably due to time pressure.

The junior’s first comment is that the audit was time pressured. All audits should be planned to
ensure that adequate time can be spent to obtain sufficient appropriate audit evidence to
supportthe audit opinion.

 Has the audit been cost Pressured?

why the costs needed to be minimised and whether there was a self‐interest threat at play as a
result of quoting an inappropriately low fee.

linked this back to the inappropriately low fee and the implication that profits were being
prioritised over audit quality

 Has the appropriate type of evidence been obtained?

 Has the audit been performed in accordance with the audit plan?
 Has the audit been properly supervised?
 Has the audit work been properly reviewed?

Features of High Quality Audit:

1. Sufficient time to plan, do and review.

2. Appropriate staffing.
3. High risk are given appropriate focus:
Should be given to those individuals with high experienced or best possible indivudal like
audit manager , a lot of attention is required.
4- Reviews oerfomed by the right people.
5- Ethical threats mitigated with appropriatae safeguards

Reviews:

 Timely
 More senior auditor should done it
 EQR/ hot review ( listed and high risk audits)= avoids issuing inappropriate audit opinion.
 PIR/ Cold review( Selection of audits )= firm want to learn from their mistakes (Post issuance
REveiew)

Use The scenario Fully

Refer to the requirement

 Explain why each point cause a quality problem

 Use the scenario to illustrate each issues

Only use an explanation once:

 Does not repeat sentence again and again

 Intimidation Threat:
Additional credit was available for those candidates who questioned whether the junior team member
had been intimidated by having to approach the busy CFO for the information, or for assessing that the
evidence obtained did not cover all the assertions relating to development costs and was all the
evidence was internally generated.