In connection with the audit of BBrave Berhad, for the year ended December 31, 2020, Jonathan, a manager that is working at Grant Brilliant a public accounting firm, is aware that certain events and transactions that took place after December 31, 2020, but before Grant Brilliant issues audit report dated February 25, 2021, may affect the company’s financial statements. The audited financial statements released to the public on March 15, 2021. The following material events or transactions have come to his attention.

The BBrave company is involved in litigation in year 2015 for which the potential liability is so great that unfavourable judgement at or near the claimed amount would be seriously impair its operations. In December 2020, this is how the company’s attorneys answered the legal confirmation request: “Although no assurance can be given as to the final outcome of this action, based on the facts known by us to date, in the confidence of the attorney/client relationship and otherwise, and our understanding of the present law, we believe the BBrave has limited and despicable defense to the claims asserted. In February 5, 2021, the court has ordered BBrave to pay RM100 million to the third party.

On February 20, 2018, the company signed an agreement to purchase 100 percent of the assets and research and development of its main competitor, BYoung for RM200 million. BBrave issued new common stock to the shareholders of BYoung amounting to RM150 million and added new debt from available lines of credit in the amount of RM50 million. At the same time, BBrave has merged its operations with BSmart, a young and innovative company which is expected to further enhance the company’s position and performance.

BBrave has lost significant amount of its inventories as a result of fire on March 1, 2021

At the same note, In November 2020, BBrave has sold inventories it to one of its key customer. However, the customer was declared bankrupt in February 10 2021, thus, the amount cannot be collected. The fact of the event become known to the Hermes on March 25.

Dikehendaki/Requirements:

1. What course of action should Grant Brilliant take with respect to the above events?

Note: the mark allocation is shown against each of the three issues.

(9 markah/marks)

2. Discuss on roles of audit committee on promoting audit quality. What items should be included in the auditors’ communication with an audit committee towards completing of an audit engagement?

(5 markah/marks)

3. Discuss the in details on stages for audits of group financial statements.