Question 2a
Kennel & Co, a firm of Chartered Certified Accountants, is the external audit provider for the Retriever Group (the Group), a manufacturer of mobile phones and laptop computers. The Group obtained a stock exchange listing in July 2012. The audit of the consolidated financial statements for the year ended 28 February 2013 is nearing completion.
You are a manager in the audit department of Kennel & Co, responsible for conducting engagement quality control reviews on listed audit clients. You have discussed the Group audit with some of the junior members of the audit team, one of whom made the following comments about how it was planned and carried out:
‘The audit has been quite time-pressured. The audit manager told the juniors not to perform some of the planned audit procedures on items such as directors’ emoluments and share capital as they are considered to be low risk.
He also instructed us not to use the firm’s statistical sampling methods in selecting trade receivables balances for testing, as it would be quicker to pick the sample based on our own judgement.
‘Two of the juniors were given the tasks of auditing trade payables and going concern. The audit manager asked us to review each other’s work as it would be good training for us, and he didn’t have time to review everything.
‘I was discussing the Group’s tax position with the financial controller, when she said that she was struggling to calculate the deferred tax asset that should be recognised. The deferred tax asset has arisen because several of the Group’s subsidiaries have been loss making this year, creating unutilised tax losses.
As I had just studied deferred tax at college I did the calculation of the Group’s deferred tax position for her. The audit manager said this saved time as we now would not have to audit the deferred tax figure.
‘The financial controller also asked for my advice as to how the tax losses could be utilised by the Group in the future. I provided her with some tax planning recommendations, for which she was very grateful.’
Required:
In relation to the audit of the Retriever Group, evaluate the quality control, ethical and other professional matters arising in respect of the planning and performance of the Group audit. (13 marks)