Background

You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting firm with offices in Orange, Wagga Wagga, Tamworth, Port Macquarie and Albury in NSW, Toowoomba in Queensland and Ballarat in Victoria. Although a medium-sized firm by national standards, SBF includes Australias largest regionally-based auditing practice. Most of SBFs audit clients are in the manufacturing and service industries.

It is a late summer afternoon in February 2019 and you are meeting with your audit team to discuss the 30 June 2019 year-end audit for Bletchington Limited, an innovative defence industry manufacturing company based in Orange, listed on the Australian Stock Exchange (ASX), and one of SBFs largest clients by fee revenue. Bletchington often has to go through a competitive market tender process to win large government contracts and only does business with countries that have a recognised democratically elected government. Its main product is a highly specialised light armoured vehicle known as the Bush-Basher. Given the sensitive nature of its designs and clients, Bletchington maintains a highly secure environment.

William Albanese has been the engagement partner on the Bletchington audit for the last 5 years. Andrew is a specialist in the defence industry and intends to remain as the review partner when the audit is rotated next year to Skye Larke, who is to be promoted to partner in early 2020 to enable her to sign off on the 30 June 2020 Bletchington audit.

In September 2018, Bletchington installed an off the shelf costing system. The new system replaced a system that had been developed 'in-house' but could no longer keep up with the complex and detailed manufacturing costing process that provides tender costings. The old system also had difficulties with the company's broader reporting requirements. Bletchington's information technology (IT) department, together with the consultants from the software company, implemented the new manufacturing costing system. There were no customised modifications. Key operational staff and the internal audit team from Bletchington were heavily involved in the selection, testing, training, and implementation stages.

Bletchington has a small internal audit department which is headed by an ex-partner of SBF, Kev Kevanna. Kev joined Bletchington after leaving SBF 6 years ago. He is assisted by three junior internal auditors, all of whom are completing Bachelor of Accounting studies at Charles Sturt University.

Required

Write a memo to William Albanese, the current Bletchington engagement partner, that advises him on the following:

Question 1 (4%)

The expectations gap that could exist for the audit of Bletchington, including the existence of any special users of Bletchington's financial reports.

Question 2 (6%)

With reference to relevant legislation and the auditing standards:

• threats to independence for SBF in its audit of Bletchington
• safeguards against any potential threats to SBF's independence

  Question 1
  Explanation and critical evaluation of the influence of Australian and international professional standards, public expectations and regulatory bodies on audit and assurance services (4 marks).	Comprehensive, focused, and concise synthesis and critical evaluation of the relevant expectations gap issues and stakeholders.
  Question 2
  Identification and evaluation of the influences of legislation and auditing standards on independence issues during the audit process (6 marks).	Comprehensive synthesis and critical evaluation of the legislation and auditing standards most integral to threats to independence and safeguards against those threats.

  These last two criteria relate to the whole of the case study. N.B. although these criteria are not given a separate mark, they will be taken into account when marking each of the previous three criteria.

  Professional communication using a business report format: * Arial 10pt or TNR 12 pt font; * 1.5 or double line spacing; * space between paragraphs; * appropriate headings; * professional language.	Focused, intelligible, accurate, and concise statements are organised into a professionally-structured and formatted report which engages the reader and justifies and clarifies an insightful critical perspective.
  Appropriate resources and correct APA (6thed.) referencing	Seamlessly and articulately integrated evidence from four or more credible, relevant sources. All work has been referenced correctly as per APA (6th ed.) requirements.