Sweetheart Junkyard, a Sao Paulo based world-wide online dating site for individuals who feel they have been unlucky in love, has hired Chiquento Da Silva, Aquino, Franco de Lima and Coda (CAFC) as their group auditor. CAFC proposes a financial statement audit of the Sweetheart Junkyard and the main subsidiaries SJ Euro and SJ USA. Three other subsidiaries – SJ China, SJ Asia and SJ South America – will get a review. CAFC will work with a different component auditor for each of the locations. The subsidiary SJ Asia audit by Wu and Wang, CPAS was not up to the quality standards of CAFC because they offered no safeguards against self-interest and self-review threats. The group auditors, CAFC, will not do an internal control audit and will limit their management letter comments. There is a suspected employee fraud involving accounts payable at the SJ Euro location.

Required:

Write a communication to the board of directors explaining the audit of Sweetheart Junkyard.

The following matters shall be communicated by the group engagement team to those charged with governance of the group:

• An overview of the type of work to be performed on the financial information of the components.

• An overview of the nature of the group engagement team’s planned involvement in the work performed by the component auditors on the financial information of significant components.

• Instances where the group engagement team’s evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor’s work.

• Any limitations on the group audit.

• Fraud or suspected fraud involving group management, employees who have significant roles in group-wide controls or others where the fraud resulted in a material misstatement of the group financial statements.