ACCA AAA ^UK Syllabus C. Practice Management - Elements of a QC system - Past Papers ^{3 / 6}

The audit of Bradley Co’s financial statements for the year ended 31 August 2014 is nearly complete, and the audit report is due to be issued next week. Bradley Co operates steel processing plants at 20 locations and sells its output to manufacturers and engineering companies. You are performing an engagement quality control review on the audit of Bradley Co, as it is a significant new client of your firm. The financial statements recognise revenue of $2·5 million, and total assets of $35 million.

(a) The audit senior who has been working on the audit of Bradley Co made the following comment when discussing the completion of the audit with you:

‘We received the final version of the financial statements and the chairman’s statement to be published with the financial statements yesterday. I have quickly looked at the financial statements but the audit manager said I need not perform a detailed review on the financial statements as the audit was relatively low risk. The manager also said that he had discussed the chairman’s statement with the finance director so no further work on it is needed.’

Required:
Explain the quality control and other professional issues raised by the audit senior’s comment in relation to the completion of the audit. (7 marks)

You are the manager responsible for the audit of Dylan Co, a listed company, and you are reviewing the working papers of the audit file for the year ended 30 September 2012. The audit senior has left a note for your attention:

‘Dylan Co outsources its entire payroll, invoicing and credit control functions to Hendrix Co. In August 2012, Hendrix Co suffered a computer virus attack on its operating system, resulting in the destruction of its accounting records, including those relating to Dylan Co.

We have therefore been unable to perform the planned audit procedures on payroll, revenue and receivables, all of which are material to the financial statements. Hendrix Co has manually reconstructed the relevant figures as far as possible, and has supplied a written statement to confirm that they are as accurate as possible, given the loss of accounting records.’

Required:

Discuss the quality control procedures that should be carried out by the audit firm prior to the audit report being issued. (3 marks)