Auditing

Question You are an audit supervisor of Mensah & Co and are planning the audit of your client, NewLove Co which manufactures cleaning products. Its year end was 31 July 2021 and the draft profit before tax is GH5336 million. You are supervising a large audit team for the first time and will have specific responsibility for supervising and reviewing the work of the audit assistants in your team. Newlove Co purchases most of its raw materials from suppliers in Africa and these goods are shipped directly to the company's warehouse and the goods are usually in transit for up to three weeks. The company has incurred GHS1-3 million of expenditure on developing a new range of cleaning products which are due to be launched into the market place in November 2021. In September 2020, NewLove Co also invested GH50-9 million in a complex piece of plant and machinery as part of the development process. The full amount has been capitalised and this cost includes the purchase price, installation costs and training costs. This year, the bonus scheme for senior management and directors has been changed so that rather than focusing on profits, it is instead based on the value of year-end total assets. In previous years an allowance for receivables, made up of specific balances, which equalled almost 1% of trade receivables was maintained. However, the finance director feels that this is excessive and unnecessary and has therefore not included it for 2021 and has credited the opening balance to the profit or loss account. A new general ledger system was introduced in May 2021; the finance director has stated that the data was transferred and the old and new systems were run in parallel until the end of August 2021. As a result of the additional workload on the finance team, a number of control account reconciliations were not completed as at 31 July 2021, including the bank reconciliation. The finance director is comfortable with this as these reconciliations were completed successfully for both June and August 2021. In addition, the year-end close down of the purchase ledger was undertaken on 8 August 2021. Page 1 of 2 Required: (a) Describe SEVEN audit risks, and explain the auditor's response to each risk, in planning the audit of NewLove Co. Note: Prepare your answer using two columns headed Audit risk and Auditor's response respectively. (14 marks) (b) In line with ISA 220 Quality Control for an Audit of Financial Statements, describe the audit supervisor's responsibilities in relation to supervising and reviewing the audit assistants' work during the audit of NewLove Co. (6 marks)