5.21

Revglow Ltd, a large proprietary company, was incorporated on 1 July 2019. A short time later, one of the non-shareholding directors, Fred Bile, approached his tax agent, GinaRogers, to ask her to be Revglow's auditor. Ms Rogers is a chartered accountant, but had notperformed any audits and was hesitant about accepting the engagement. Mr Bile said the appointment would be only temporary until proper documentation could be prepared and the audit work put out to tender. Ms Rogers said she would accept this arrangement and Mr Bile prepared a letter confirming the appointment on 21 July 2019.

At its first meeting on 1 September 2019, the board decided to confirm Ms Rogers as the auditor of Revglow for a period of 3 years. They were impressed with the recommendation given by Mr Bile and decided that requesting tenders would be a time-consuming and inefficient process.

Required:

Discuss whether the requirements of the Corporations Act have been followed in the above scenario.

6.12What are the contents of an unmodified auditor's report? Explain each section.

6.13Explain what a 'Key Audit Matter' is and under what circumstances it should be included

in theauditor's report?

5.17What are the benefits of a financial report audit?

5.23On 31 March 2020, Black and Black (a firm of certified practising accountants) completed the audit of E-Wine Pty Ltd for the year ended 31 December 2019. E-Wine is a wine store that operates solely on the internet. On 15 May 2020, Tom Black (the audit partner responsible for E-Wine) received a phone call from the financial controller of E-Wine, Ms Chong, who was very angry. Ms Chong said that their accounts receivable clerk suddenly resigned a month ago. This sudden departure raised suspicions and, after an investigation of the accounting records, it was discovered that $200 000 was missing. Subsequently, the board met and decided Black and Black was almost entirely to blame. As a result, Ms Chong said the board had decided to dismiss Black and Black as auditors, effective immediately. Black and Black would receive written confirmation in the next week and legal action would probably follow.

Required

(a) Explain whether E-Wine has taken the proper action to remove their auditor.

6.14What are the different types of modified audit opinions? Explain each type.

6.15Under what circumstances may the auditor decide to include an 'emphasis of matter'

section in the auditor's report?

5.26You work for a mid-sized audit firm, Green & Co. One of your clients, Wedford Ltd, recently established an audit committee in compliance with the Australian Securities Exchange listing requirements. The committee is made up of Francis Carton, Jo Pashtoon and Charles Digson. Francis is an executive of the company and has worked his way up from a factory worker through to management. Francis is the chairperson of the audit committee.

Jo is not a member of management and is therefore a non-executive director, but she does serveon a number of other boards. Jo's background is in accounting and before she became a directorshe was the CFO of a large corporation for many years.

Charles is the chairperson of the board of directors and is an executive of the company. Charles'background is in manufacturing and he has been with Wedford Ltd for 5 years.

The committee has drafted a charter which details its rights and responsibilities. This will include thecommittee's interactions with the newly formed internal audit department. The Board would like to discuss with you the relationship between your firm as external auditors, the internal audit team and the audit committee.

Required

A report for the Board, covering the following matters:

1. Outline the objectives of an audit committee.
2. Discuss the interaction between the audit committee and both the internal and external audit
3. functions.
4. Identify the strengths and weaknesses of Wedford Ltd's audit committee.

6.20What might constitute "other matters" on which an auditor may be required to report?

6.22Scarborough Hydraulics Ltd contracts with governments to carry out a variety of infrastructure projects including water treatment and desalination plants and other drainage works. It also acts as a contractor to maintain a range of government infrastructure assets. The contracts that it has with its government customers have very strict turnaround times to ensure that, in the event of problems, water services to the public are quickly brought back on-line.

You have completed your audit of Scarborough Hydraulics and the following material events occurred:

Scarborough holds a stock of high-value drainage components to allow them to be able to respond quickly to theircustomers' needs. Due to the size and quantity of these items, they were stored in a largeoutdoor space on the outskirts of Sydney. Shortly after the year end a significant amount of this stock was stolen. The security at this site was inadequate and no record of the theft is available.

Scarborough has a large manufacturing centre in Melbourne which provides prefabricated concretefor the company's infrastructure projects. The company policy is to include factories in the balance sheet atmarket value less accumulated depreciation. The Melbourne factory is included in the balance sheet based on a valuation carried out five years ago. The company has not engaged a valuer to revalue the property because the directors believe that market values have remained fairly level over the last five years, so the existing carrying value is not materially different from current value.

During the year, Scarborough completed a contract to provide drains for a private construction company that was building 500 houses in a new suburb of Brisbane. Shortly before the year end, a downpour of rain saw the drainage system fail causing damage to the houses being built. The construction company is suing Scarborough for the costs of rectifying the damage. Scarborough have not provided for any possible payout because they expect their losses to be covered by a claim against one of their sub-contractors that supplied the faulty part that caused the failure.

Required

Discuss each of the above issues, state what effect each would have on the audit opinion and give reasons.