Ruth Consultancies was hired by ABC (Pty) Ltd to audit their financial statements. Ruth Consultancies has accepted its first engagement with ABC (Pty) Ltd. Ruth is about to begin the audit. The Senior auditor also chooses you to be a member of the auditing team. So you began researching the client and the responsibilities of auditors in relation to the task at hand. You are required to: a. Explain the importance of understanding ABC (Pty) Ltd's environment. (4 Marks) b. Examine external auditors' responsibilities in detecting error and fraud in an audit of ABC 's financial statements. (15 Marks) c. Explain the roles of the directors and auditors in the preparation of financial statements. (6 marks) Question 25 MARKS You are a director and the Chief Auditor at Allen Associates. You have been tasked with preparing financial statements for Tee Cee (Pty) Co., which provides stationary to government agencies such as offices, hospitals, and schools. The Tee Cee (Pty) is a committed customer and referee for your business. Tee Cee Co.'s Chief Finance Officer, Thomas Tebogo, intends to convert the company to a public limited company as soon as possible by listing on the BSE (Botswana Stock Exchange). As a result, he works around the clock to prepare documents and comply with BSE regulations. Mr. Tutu Alex, Tee Cee Co's Deputy Finance Officer, left to join Allen Associates. Mathews, the Chief Director of Tee Cee, insisted on Allen Associates completing the financial statement preparation as soon as possible and providing a report with minimal issues. The Director Mathews also offered you a family trip to Singapore to inspire you and finish the audit as soon as possible. He also suggested that Mr. Tutu Alex will be assigned the task of conducting a review audit of the company's financial statements because he is familiar with the company's affairs. Required: a. Describe any six threats to the independence of Allen Associates' audit of Tee Cee (Pty) Co. (12 marks) b. Explain about the protections that your company should put in place for each of the aforementioned threats. (9 Marks) According to BSE regulations, creating an audit committee is a prerequisite for listing. Therefore, Tee Cee is asking you for guidance on this matter. Required: c. Inform Tee Cee Co. of the advantages of forming an audit committee. (4 marks) Question 325 MARKS You work as the audit manager for MS Auditing. ABC Ltd's Finance Director contacted you after attending a webinar on the importance of corporate governance and internal controls in business success. ABC Ltd. offered an assurance engagement to evaluate their organization's risk management and internal control system. Besides that, he quoted from the webinar that, "Auditors are required to assess risks of material misstatement by developing an understanding of the business risks of an audit client". Required: a. Define the terms risk of material misstatement and business risk. (4 marks) b. How does business risk relate to material misstatement risk? (6 marks) c. Discuss the issues you should think about before accepting an audit client. (5 marks) d. Explain the significance of planning in an engagement and the issues that must be addressed as part of the planning process. (10 marks)