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Around going concern and fraud risks and procedures

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a question where we have to use anlytical procedures

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a question where we have to use anlytical procedures

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different risk assessments e.g. business vs inherent

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different risk assessments e.g. business vs inherent

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Under the auditing standards/companies act, only specific additional non-audit related work can be provided to a listed client. P&M should not take this into account when tendering for Sixtent as the fee should reflect the proposed work and time required to complete the audit engagement.

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The auditor has recently resigned. P&M should obtain consent of Sixtent to write to the former auditor to enquire if there are any matters of concerns which would affect P&M’s decision. If former auditor does reply, P&M should consider the reply. If P&M accepts the engagement, it should ensure the resignation of former auditor is properly accepted by Sixtent.

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Consider whether P&M have the expertise and resources available to audit the abroad offices.

Enough staff available to travel abroad and whether language barriers will be a problem

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Ethically, we need to consider our professional competence and due care by considering our capacity to take on the work. A December year end is quite popular and we would need to ensure we have the staff available to meet any deadlines.

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The engagement will require auditing the companies which are abroad. It is important to consider whether we are able to complete this efficiently following the correct legislation within that country.

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FRC Ethical Standard states that audit fees should not be influenced by the expectation of non-audit work.

Instead, the audit fee proposed should reflect the time expected to complete the audit and the skills/experience of the audit team.

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Non Audit services are restrictive to less than 10% of the firms revenue for listed companies to act as auditors. If the Audit fee takes over that they cannot act as Auditors. There is a self-interest threat that they may reduce their fee to so they can act as an auditor so we need to make sure fee’s are aligned with services offered and if they breach the above not act as auditor or not do the non-audit services.

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- Sixtent uses aggressive accounting and tax strategies in order to drive growth. These strategies are driven by Arvin Sixtent who is the owner. This poses threats as management may choose to use tax strategies that are at odds with the auditor’s view and thus pose the risk of non-compliance or misstated accounts which could be not detected by the auditor and result in an inappropriate opinion. Furthermore, the auditor could detect these strategies and request management make amendments but as the strategy is being driven by senior management they may be reluctant to change them and there may be ethical issues such as a self-interest threat to objectivity that will need addressing through safeguards.

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Auditors  recently resigned due to differences over governance practices, this could indicate accepting the engagement could give rise to potential intimidation threats. P&M should obtain permission to contact outgoing auditors for reasoning behind resigning and any concerning information about Sixtent that could affect their decision. If permission is denied then consider turning engagement down.  

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Auditors  recently resigned due to differences over governance practices, this could indicate accepting the engagement could give rise to potential intimidation threats. P&M should obtain permission to contact outgoing auditors for reasoning behind resigning and any concerning information about Sixtent that could affect their decision. If permission is denied then consider turning engagement down.  

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Non-audit service opportunities may affect the teams objectivity in raising a fee and potentially enable low balling in order to secure other services. This should not influence the audit tender and this should not be disclosed to the individual assessing the fee to remain objective.

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As Sixtent is a sizeable business with complex group structure, it has potential to be too high risk to take on. When accepting an engagement, a firm should carry out a risk assessment of the prospective client to ensure they have the competence and capacity to work for them. This would impact the auditor’s duty of professional competence and due care.

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Acquisition of companies abroad may pose problems dealing with different accounting practices, language barriers and legal treatment which the team may not be aware of. Also the auditor may not be able to facilitate the  use of resources abroad. The auditors should utilise local experts to help understand local differences, the same accounting treatment across companies to keep consistency and check they have the ability to conduct such audit

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We need to consider our ethical principle of professional competence and due care ensuring we have enough resources to complete the audit.

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Tendering to client may damage the firms reputation due to the question around their governance practices. It should be considered whether the firm has the ability to take on a client of high risk

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There is a reputational risk if the audit firm accept the engagement due to the aggressive accounting and tax strategies and the bad publicity that has arisen with Sixtent. The audit firm should obtain permission from Sixtent to contact the previous auditor on why they resigned. If Sixtent decline they should consider declining the engagement. If they accept, ensure all discussions are recorded as evidence as why they may have accepted the engagement.

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when considering tendering for the audit of Sixton, P&M should consider the following:

- Size of the Sixton group, does P & M have the scope to cover a company this large and not affect the audit quality.

- opportunities for P&M to conduct non-audit services, raises self-interest risk as P&M will have to ensure there annual fee from Sixton if reaches 5% safeguards applied and if exceeds 10% then to decline the audit or relook at work being conducted.

- Sixton management suggesting P&M to consider non-audit work available when considering fee, raise intimidation threat. P&M should not be pressured to low ball their fee in order to succeed in gaining the audit, as if fee is too low this will cause further issues of short cuts being taken further down the line.

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Taking on a client with known governance issues and controversial practices could damage P&M’s reputation. P&M must ensure Sixtent complies with relevant laws, such as corporate governance and financial reporting standards as concerns raised about aggressive accounting practices might signal potential legal risks tied to non-compliance. P&M must also evaluate whether accepting the audit aligns with its commitment to integrity and objectivity as there could be pressure from Sixtent’s management to endorse aggressive accounting practices.

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The proposal offer of additional non-audit services should not be taken into account when deciding whether to accept the engagement as this can lead to a self-interest threat. It can also be seen as an intimidation threat.

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P&M must carefully evaluate the risks linked to Sixtent's aggressive accounting and tax strategies, particularly in light of the recent resignation of the previous auditors due to disagreements with top management. They must ensure that Sixtent’s financial practices adhere to applicable laws and regulations. To take on this audit, P&M must also confirm that they have the necessary expertise and resources to effectively assess the complex accounting and tax strategies of a large listed group.

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Should rotate after 5 years for listed. 10 years for not listed.

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Auditors report needs to be submitted within 6 months of YE

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The audit engagement quality reviewer must rotate after seven years.

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Engagement quality review required.

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The firm will not be allowed to complete the tax work if the company becomes listed.

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Key audit matter

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Ensure fees don't exceed 10% of total fee income

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Key audit matters

Partner rotation

Fee cap (independence)

Tighter controls on non-audit services

Hot review

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Review non-audit services if they are prohibited in Ethical Standards.

Ensure the engagement partner is rotated every 5 years, or within 7 years subject to audit committee’s approval.

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The firm must be rotated after 20 years

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additionally with Ellken becoming a listed client, P&M will have to consider fee's to ensure within correct threshold's of 5% with safeguards and do not exceed 10%

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Opinion of whether the corporate governance statement is consistent with the annual accounts.

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Communicate with audit committee and forward new engagement letter

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If tax work taken on we cannot continue to do this as a listed company. Fee dependencies change from 15% to 10% (preferably 5%). Engagement partner need to be rotated after 5 years. Engagement quality review is required. if Engagement partner has already served 4 or more years so can only continue for a further 2 if becomes listed.

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ICAEW has a Code of Ethics. ICAEW gives professional support to practitioners including consultation. CPD? ICAEW can do a quality review on assurance files.

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Provides articles based on current economic situations which may impact audit engagements

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Code of Ethics that require members to comply to fundamental principles

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Have to undertake exams to evidence a level of knowledge and competence

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Students sit the 15 exams and 450 days practical work experience

Official Members need to do annual CPD

Code of ethics

ICAEW helpline as last resort for employees

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Monitor compliance with standards by undertaking inspections of audit firms and recommend improvements

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This gives companies a good indication of where there work standard is at and any potential improvements

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Need to have enough available resources

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language barriers

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enough knowledge and expertise

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translation risks - foreign exchange (need more attention)

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Calculate materiality e.g 1% revenue and identify material balances for substantive procedures

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if more than 10% of total revenue

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Inherent risks associated with oversea departments

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How the currency exchange is treated. Are they all exchanged at year end or when the purchase occurs?

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The firm may not be able to gain assurance over the level of stock maintained at each facility if they do not have the resources to accurately test each location

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Laws and regulations

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different regulations in other countries

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·         Foreign currency translations – potential for there to be translation errors

·         Legislation in these continents – especially health and safety as its manufacturing

·         Language barriers

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legislation and reporting standards

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Professional competence. Whether we are able to undertake based on the reporting standard

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Get in touch with component auditors if this is a group audit

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Currency translation

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When carrying out testing regarding minimum wages, the testing will need to be adjusted to confirm with the laws and regulations of the countries the facilities operate.

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Materiality

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when did you say we usually get our results?

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Impacts are the way that an organisation positively or negatively impacts environmental, social and governance matters.

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Impact is the effect the company is having on the environment in relation to sustainability.

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Examples of the way Albadawn could impact ESG are

Fast fashion becomes obsolete quickly and can lead to increased landfill

Fast fashion industry has a reputation of poor pay and working conditions for those making the clothes

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Dependencies are things that the company relies on in order to become/remain sustainable.

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Dependencies are the way ESG factors can affect the organisations ability to do business

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Albadawn's wastage is dependent on fashion trends.

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Synthetic material availability may be limited

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timing for Qs, order to take them/prioritize? struggling to finish the paper