Audit Analysis

Going public—IFRS

Change in accounting standards

Users—investors

Biases-

Borrowing a large amounts of cash, tarnished reputations ---going concern

Much of payment not collected

Foreign investors

Consulting and auditing

Requirement:

Continuance decision

Issues (changes in work and audit report)

Changes to audit report if issues not resolved

Issue: Internal control

PPl management is having problems dealing with operations and their accounting systems are struggling to keep up. So, the design, implementation and maintenance of internal control are questionable which will threaten to the preparation of the financial statements. In addition, it can be hard for PPl obtaining sufficient and appropriate audit evidence from ABC due to out-of-date accountings systems. Lack of sufficient and appropriate evidence makes auditors hardly draw reasonable conclusions by using professional judgment. The audit risk in this case is relatively high.

This is a material misstatement, a scope deficiency and it is pervasive as accounting system and internal control will affect all the accounts with in the PPl. If PPl cannot improve the operation and accounting system and provide sufficient and appropriate accounting evidence, the audit report should show a modification paragraph and disclaim the opinion.

Issue: Independence

The growth of ABC largely due to the growth of several clients including PPl and the billing to PPl have more that tripled in the last year while much of the billings remain uncollected at this point. So, if ABC takes this engagement, ABC need to ensure that ABC itself and members of ABC remain free of any influence, relationship or interest which would impairs the professional judgement or which, in the view of a reasonable observer, would impair the professional judgment

Issue: Continuous engagement

In CAS 220, Information relevant to decision about continuance of client relationships and audit engagements are:

• Integrity of clients

PPl has a great need of cash because of its rapid growth. So, PPl borrowed a large amount cash from an investor who has tarnished reputations instead of investors who have good reputations. There is a risk that PPl or managers in PPl involved in unethical or even illegal activities.

• Competency of engagement team

Since ABC has already done a variety challenging professional work for PPl, the auditors in ABC should be competent in auditing PPl.