QUESTION 2 30 MARKS After you completed your Bachelor of Accounting degree, you commenced with your articles at an auditing firm called Balance Auditors (Pty) Ltd. "Balance" is located in Hermanus in the Western Cape. You were assigned as an Audit Clerk on the audit of a new client called Thandi Wines (Pty) Ltd "Thandi". Background information: Balance Auditors (Pty) Ltd The audit firm has two partners and five professional staff members that render audit services, mainly in the mining industry. Balance however recently obtained Thandi as a new client. Mr. Vernon is one of the two Audit Partners at Balance and the partner in charge of the audit of Thandi. Ms. Nicole, an Audit Manager, as well as Ms. Abigail, an Audit Senior, will assist Mr. Vernon with this audit. The directors of Thandi requested that Balance finalise the audit within four weeks after the financial year, which places the auditors of Balance under extreme pressure. Background information: Thandi Wines (Pty) Ltd Thandi's financial year-end is December 2021.Thandi is a wine producing company and owns its land and vineyards. They have in-house winemakers that produce wine on the premises with the bulk of their wine being exported. Thandi finances were negatively impacted during the Covid-19 pandemic and, in 2021 , they started recovering again as the international borders started to re-open. The CEO of Thandi, Mr. Craig, mentioned that he generally does not like external auditors. Mr Craig also mentioned that he and Mr. Vernon, the Audit Partner, are friends and Mr. Vernon regularly assists him to complete his personal tax returns. This is why he would like Balance to perform the audit. Mr. Craig mentioned that he runs Thandi with an iron fist and that "Employees must do as I say or they can start looking for employment elsewhere. This is the only way to run a profitable business and to show a nice big profit every year." Audit Planning Meeting. The below discussions were held on 15 September 2021: According to the management of Thandi, the previous auditors resigned without giving reasons for their resignation. Mr. Craig mentioned that there was a dispute with the previous auditors and he suspects that to be the reason for the resignation. As a result, Mr. Vernon stated that he saw no reason to contact the previous auditors before accepting the engagement of Thandi. The Audit Manager, Ms. Nicole, queried if the audit team members had any interest in Thandi to declare. The Audit Partner, Mr. Vernon responded by stating that there is no reason to declare any interest at this stage since every staff member of Balance completes an independence declaration each year in January. Ms. Nicole enquired about the commencement of the audit. Mr. Vernon responded that the audit would commence two weeks before the 2021 financial year-end namely 20 December. Ms. Abigail, the Audit Senior, asked whether there were any business risks identified before accepting the engagement. Mr. Vemon replied stating that there were no business risks identified. Mr. Vernon advised that all the audit team members would need to read media articles and visit Thandi's website to gain a thorough understanding of Thandi. Ms. Abigail was allocated the responsibility of documenting an understanding of Thandi's operations and its related control environment. Mr. Vernon informed Ms. Abigail that the engagement letter had not yet been drafted and that she will need to draft one and date it on the 31st December 2021. Mr. Vernon will be away on holiday during the performance of the audit and wished them all the best for the audit. Required: You are worried that Balance, the audit firm, did not perform the necessary preengagement activities before accepting Thandi as an audit client. Draft a memorandum to the Audit Partner, Mr. Vernon, and inform him, in detail, of: - Any concerns and factors relevant to the competencies, capabilities, and resources of the audit firm, Balance, that should have considered before accepting Thandi as an audit client. You should specifically refer to the requirements of ISA200 (27 marks) - In your discussion, also mention any three (3) concerns that you can identify form the scenario given in relation to audit client, Thandi. (3 marks) QUESTION 2 30 MARKS After you completed your Bachelor of Accounting degree, you commenced with your articles at an auditing firm called Balance Auditors (Pty) Ltd. "Balance" is located in Hermanus in the Western Cape. You were assigned as an Audit Clerk on the audit of a new client called Thandi Wines (Pty) Ltd "Thandi". Background information: Balance Auditors (Pty) Ltd The audit firm has two partners and five professional staff members that render audit services, mainly in the mining industry. Balance however recently obtained Thandi as a new client. Mr. Vernon is one of the two Audit Partners at Balance and the partner in charge of the audit of Thandi. Ms. Nicole, an Audit Manager, as well as Ms. Abigail, an Audit Senior, will assist Mr. Vernon with this audit. The directors of Thandi requested that Balance finalise the audit within four weeks after the financial year, which places the auditors of Balance under extreme pressure. Background information: Thandi Wines (Pty) Ltd Thandi's financial year-end is December 2021.Thandi is a wine producing company and owns its land and vineyards. They have in-house winemakers that produce wine on the premises with the bulk of their wine being exported. Thandi finances were negatively impacted during the Covid-19 pandemic and, in 2021 , they started recovering again as the international borders started to re-open. The CEO of Thandi, Mr. Craig, mentioned that he generally does not like external auditors. Mr Craig also mentioned that he and Mr. Vernon, the Audit Partner, are friends and Mr. Vernon regularly assists him to complete his personal tax returns. This is why he would like Balance to perform the audit. Mr. Craig mentioned that he runs Thandi with an iron fist and that "Employees must do as I say or they can start looking for employment elsewhere. This is the only way to run a profitable business and to show a nice big profit every year." Audit Planning Meeting. The below discussions were held on 15 September 2021: According to the management of Thandi, the previous auditors resigned without giving reasons for their resignation. Mr. Craig mentioned that there was a dispute with the previous auditors and he suspects that to be the reason for the resignation. As a result, Mr. Vernon stated that he saw no reason to contact the previous auditors before accepting the engagement of Thandi. The Audit Manager, Ms. Nicole, queried if the audit team members had any interest in Thandi to declare. The Audit Partner, Mr. Vernon responded by stating that there is no reason to declare any interest at this stage since every staff member of Balance completes an independence declaration each year in January. Ms. Nicole enquired about the commencement of the audit. Mr. Vernon responded that the audit would commence two weeks before the 2021 financial year-end namely 20 December. Ms. Abigail, the Audit Senior, asked whether there were any business risks identified before accepting the engagement. Mr. Vemon replied stating that there were no business risks identified. Mr. Vernon advised that all the audit team members would need to read media articles and visit Thandi's website to gain a thorough understanding of Thandi. Ms. Abigail was allocated the responsibility of documenting an understanding of Thandi's operations and its related control environment. Mr. Vernon informed Ms. Abigail that the engagement letter had not yet been drafted and that she will need to draft one and date it on the 31st December 2021. Mr. Vernon will be away on holiday during the performance of the audit and wished them all the best for the audit. Required: You are worried that Balance, the audit firm, did not perform the necessary preengagement activities before accepting Thandi as an audit client. Draft a memorandum to the Audit Partner, Mr. Vernon, and inform him, in detail, of: - Any concerns and factors relevant to the competencies, capabilities, and resources of the audit firm, Balance, that should have considered before accepting Thandi as an audit client. You should specifically refer to the requirements of ISA200 (27 marks) - In your discussion, also mention any three (3) concerns that you can identify form the scenario given in relation to audit client, Thandi