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Godilocks plc (Godilocks), a listed company is one of your major audit clients. Godilocks is in a construction industry with operations throughout the UK. The

Godilocks plc (Godilocks), a listed company is one of your major audit clients. Godilocks is in a construction industry with operations throughout the UK. The engagement partner signed an unqualified audit report on 31 August 2019 in respect of the financial statements of Godilocks for the year ended 30 June 2019. On 30 September 2019, a qualified liquidator has been appointed at Godilocks due to failure to meet loan covenants and the bank's refusal to renew the overdraft facility.

The senior engagement partner of your firm is considering whether to notify the firm's ethic partner, as he believes that an inappropriate audit opinion may have been issued.

He has instructed an independent partner to undertake a cold review of the audit files, prior to making that decision.

The independent partner's review identified the following four issues:

Issue 1

There was no evidence that a meeting is conducted at the planning stage involving members of the audit team before or during the audit fieldwork.

Issue 2

An extract from the working paper of the audit fieldwork in respect of the direct confirmation of the trade receivables balances is shown below:

image text in transcribed
Summary of work on direct confirmation of the trade receivables balance Materiality for the financial statements - $2.0 million Trade receivables balance - $300.0 million Sample selected for direct confirmation - $20.0 million (90 balances) Results of confirmations Number Em Confirmed directly 25 10.5 For non-replies, alternative procedures were used as follows: Balances confirmed by cash after date testing 35 6.5 Balances confirmed by agreeing to sales invoices 20 2.5 No further work on balances that individually are 10 0.5 not material Total 90 20.0 Findings One error of $150,000 identified which is below materiality. Conclusion Trade receivables are therefore not materially misstated

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