Aries LLP (Aries) is a small local firm, set-up by two former Big4 auditors in January 2020. It has a team of eight audit staff including the two founders. Given its small size and the audit-centric background of its two founders, the firm focuses on providing only assurance and attestation services. Aries was recently engaged as the statutory auditor of Swabbers Pte Ltd (SPL) for the financial year ended on 30 June 2021 (FY2021). SPL specialises in pre-event testing (PET) services for Covid-19 and other related infectious diseases. PET is required for large-scale events such as conventions, live performances, sporting events, educational events and weddings. This is the first time SPLs financial statement will be audited. You have been assigned to lead the engagement as the audit manager. The audit engagement partner has also arranged a team of 3 audit staff comprising two audit associates and an audit senior to assist you in the engagement

The following information were documented following initial discussions with the Managing Director and the Finance Director: 1. Revenue Following the announcement on 4 May 2021 by the Ministry of Health (MOH) on tightening of restrictions from 8 May to 30 May 2021 after a surge in local community cases, SPL experienced a 90 percent increase in bookings for PET services. SPL also increased its price per test by more than 10% from $45 to $50 with effect from 8 May 2021, and has maintained this pricing since then. 2. Staff To cope with the demand, SPL had hired and trained 80 more part-time staff to be deployed on need-basis. Each staff is paid basis on an hourly-rate and given a fixed food and transport allowances for each day of deployment, regardless of the number of hours deployed. 3. Covid test kits SPL purchased more Covid test kits throughout the year to ensure that it is able to fulfil all confirmed and future bookings. Its inventory holdings of these test kits as at 30 June 2021 has doubled compared to the balance prior to MOH announcement on 4 May 2021. Six months after the completion of the FY2021 audit, the Finance Director asked if you can assist to recommend an appropriate accounting information system to replace the existing one as he was of the view that it is no longer sophisticated enough to support SPLs growing business.

Question 1 Explain the audit engagement partners consideration and rationale of having the audit of SPL undertaken by a team of auditors with different hierarchy.

Question 2 Discuss five (5) underlying reasons for a higher risk of audit failure in the initial year of an audit compared to the audits in the subsequent years. Indicate five (5) actions you should take in your engagement to mitigate this risk.

Question 3 For each item documented from the initial discussions with SPLs Managing Director and Finance Director, analyse and explain one (1) area of most audit concern and possible misstatement and one (1) corresponding management assertion that you will be most concerned with. Refer to paragraph A125 of SSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment for the possible assertions made by management in the financial statements. (30 marks)

Question 4 Explain the ethical implications in relation to the Finance Directors request. Discuss appropriate safeguards and actions that you should take. You should refer to the Ethics Pronouncement EP100 Code of Professional Conduct and Ethics effective 1 March 2021.