Jim Winter has just been put in charge of the Green Beauty. Green Beauty is a small, but growing retail chain of natural cosmetics stores. Green Beauty needs to borrow from the bank to finance its growth, and the bank has asked to see Green Beauty’s audited financial statements for the year ending December 31, 2022 before it will increase the loan. This is the first year Green Beauty has been audited.

Because this is his first audit as a senior, Jim was determined to bring the job in on budget. He felt that this task would be made easier by the fact he would receive excellent co-operation from the client as his sister-in-low was the accounting manager at Green Beauty. Jim has been assigned two inexperienced staff assistants for the audit. To save time, Jim gave the assistants the audit plan for Health Drug Stores (Health), another audit he worked on as a junior. He told his staff that this would make things go more quickly. He also told them that he could not spend much time with them at the client's place of business because “my time is charged out at such a high rate, we'll go right over budget.” He did call them once a day from another audit on which he was working. The assistants told Jim that the audit programs did not always match up with what they found at Green Beauty. Jim responded, “Just delete whatever is not relevant in the audit program, but don't add anything—it will only make us go over the budget.”

On the last day the staff assistants were scheduled to be at the Green Beauty’s offices, Jim came out to review their work. One assistant told Jim she was concerned that they had not attended the inventory counts at any of Green Beauty’s out-of-town locations. The Health audit program stated that inventory should be observed for in-town stores only, because Health had only one small store out of town. For Green Beauty three of their five stores are in other cities, including its largest store. In addition, internal control at Health was assessed by the auditors and found to be very effective. For the Green Beauty audit, the staff assistants asked the warehouse manager about the controls over inventory and he told them “Green Beauty is as strong a company as Health Drugs, in every way.” The assistants assumed that internal controls were also effective at Green Beauty based on this evidence.

When he heard about the additional stores, Jim told the assistants to get inventory listing sheets from the client for their inventory counts at the out-of-town stores. He told them, “Before you leave here today, make sure that the inventory balance in Green Beauty’s general ledger agrees with the total for all their inventory sheets.” The next day the staff brought their working papers in to Jim in his office at the audit firm. Jim reviewed the working papers, and recorded his conclusion that “the financial statements are fairly stated.” He submitted the completed working papers to his manager for review.

Required:

Evaluate the quality of the Green Beauty audit engagement by identifying any deficiencies in the application of generally accepted auditing standards for the conduct of the December 31, 2022 financial statement audit. For each of the deficiencies, identify which standard that was violated and explain.

Generally Accepted Auditing Standard ( ½ mark each)	Assessment of the audit engagement. Note all deficiencies ½ mark each)

Generally Accepted Auditing Standard ( ½ mark each)	Assessment of the audit engagement. Note all deficiencies ½ mark each)