It is 1 July 20X5. You are an audit manager in Welford & Co, a firm of Chartered Certified Accountants. Your role includes performing post-issuance audit quality reviews, and you have been asked to review the audit work performed on Rivers Co for the financial year ended 31 January 20X5. You have gathered the following information from your review of the audit file:

Audit team and fees

Rivers Co is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Rivers Co has been an audit client of Welford & Co for eight years, and Bob Newbold has been the audit engagement partner during this time. Rivers Cos auditors report was signed by Bob Newbold and issued last week. The report contained an unmodified opinion.

Welford & Co requires its staff to record each hour they spend working on each client in the firms time management system. From reviewing the time records relating to the audit of Rivers Co, you are aware that Bob and the other audit team members recorded the following amount of time on the audit:

Bob Newbold audit engagement partner

Pat Canley senior audit manager

Anesa Kineton audit manager

Six audit assistants

2 hours

6 hours

35 hours

130 hours

173 hours

Total time spent on audit

It is apparent from your review that almost all of the detailed review of the audit working papers was completed by Anesa Kineton, who has evidenced her review by stating final review on each page of the audit file. She has recently been promoted to audit manager.

You are also aware that Bob Newbold booked a total of 40 hours to Rivers Co in respect of non-audit work performed. The only information you can find in the documentation is that the non-audit work related to a special investigation, and that Bob confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was $250,000 and the fee for the special investigation was $890,000.

Going concern

From reviewing the audit working papers, you are aware that going concern was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the companys construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.

Most of the audit work on going concern was performed by Mary Loxley, an audit assistant who has just taken her last professional exam and is not yet qualified. The majority of the audit work performed on going concern focused on a review of five major contracts to determine their profitability. The management of Rivers Co identified the major contracts for review and provided Mary with forecasts indicating that the contracts would all make a small profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary completed the conclusion on going concern, stating that there is no significant uncertainty over going concern.

Required:

Comment on the quality of the planning and performance of the audit of Rivers Co, discussing the quality control, ethical and other professional issues raised and recommending appropriate actions to be taken.