Greenbuilders Pte Ltd (GPL) is a local construction company which specialises in providing bespoke Design and Build construction services for private residential homes that are designed to be environmentally friendly. Due to the niche market GPL caters to, demand for such homes usually come from the more affluent class in Singapore. You are an audit senior conducting an audit on the company for the year ending 30 June 2022.

The war between Russia and Ukraine has resulted in rising labour and material costs in the construction industry. As the country has opened up its borders, the construction industry still faces a labour crunch and rising costs from the ongoing Covid situation and aftermath of the geopolitical impacts.

During the course of your audit, the following information was documented following initial discussion about Sub-Contracting Costs with the Finance Director:

To cope with the project backlogs arising from the pandemic, GPL had to sub-contract some of the work to other contractors. The companys policy is to fully recognise sub-contracting costs upon payment to its sub-contractors. The Finance Director noted that there has been a backlog of outstanding payments to sub-contractors but asserted that GPL has good relationships with its sub-contractors and outstanding payments can be settled gradually given the current economic situation.

From the sub-contracting costs process, the following are required:

• Assess and discuss one (1) inherent risk,
• Evaluate one (1) risk of material misstatement (RMM) related to the inherent risk, analyse one (1) key control that GPL should implement, and assess one (1) substantive procedure
• Discuss one (1) corresponding management assertion that you will be most concerned with.