SECTION A (COMPULSORY) Question 1 PART A You are the Audit Manager at Phoenix, an International Audit Firm. You were assigned a job on Alex Co Ltd, a 100% subsidiary of ABROS Co Ltd. Phoenix provides assurance services to Alex Co Ltd, whereas ABROS Co Ltd and Group are audited by Eagle, a local audit firm. Eagle also provides other non-assurance services to ABROS Co Ltd and the Group, inclusive of Alex Co Ltd. The audit of the financial statements for Alex Ltd as at 31 December 2016 is shortly to be finalized but there are some material information that you have not received and Alex Ltd has a loss of MUR 5 million for the year end 31 December 2016 and an accumulated loss of MUR 175 million, and the stated capital is MUR 150 million. You have not yet received the financial support letter from ABROS Co Ltd, whereas the management of ABROS Co Ltd has verbally stated to provide the letter. But as at date, no such letter has been received at your office. ABROS Co Ltd, is an international company producing house cleaning chemicals. You have read in the newspaper, that one of the main producing factory of ABROS Co ltd, is subject to a major lawsuit following explosion in the reactors, due to poor quality chemicals, which has led to death of thousands of civilians in that country. The government of that country has ordered ABROS to stop all factories operations. Around 8 of the 15 factories were closed. There have been major redundancy costs for the Group. You requested the management of ABROS Co Ltd to provide you the claim amount for the GROUP, so that you can assess the GROUP continuity. As at date no such claim was forwarded to your audit firm, but an explanation was sent to your attention by management of ABROS Co Ltd, stating that the GROUP auditor has done their work and has provided satisfactory representations. When you enquire with the Group Auditor, the latter refused to give supporting evidence and also to confirm the claim. Furthermore, you have been requested by management and Auditor of ABROS Co Ltd, not to qualify the audit opinion of Alex Co Ltd. Page 1 of 6 Advanced Auditing - ACF3003 (5) Required: a. Discuss how professional skepticism should be applied to the statements made by the management and auditor of ABROS Co Ltd, regarding the legal case of the closure of the 8 factories following death of thousands of civilians. [10 marks) Comment on the ethical and professional issues raised, considering any implications for the audit, in respect of: The evidence obtained in relation to the financial support provided by ABROS [12 marks] b. i. Co Ltd to Alex Co Ltd. ii. The request not to qualify the auditor's report of Alex Co Ltd. [8 marks] PART B ABC Ltd is a large, private company which has been owned 90% by the Ah Kong family since incorporation in the year 1994. The audit is completed this year end 31 March 2017, and the finance Director, Mr James Ah Kong, is considering listing the company on the Mauritius Stock Exchange. E contacted your firm and wants an audit partner of your firm to work on the listing assignment. Currently, ABC Ltd board of directors is controlled by the Ah Kong family members. Given ABC Ltd is a private company it has no complied with the corporate governance and even does not intend to comply with same after listing on the Stock Exchange. Required: You are required to comment on the above information: The implications the governance structure and proposed listing on the Stock Exchange may have on the audit process. [10 marks] [Total: 40 marks) SECTION A (COMPULSORY) Question 1 PART A You are the Audit Manager at Phoenix, an International Audit Firm. You were assigned a job on Alex Co Ltd, a 100% subsidiary of ABROS Co Ltd. Phoenix provides assurance services to Alex Co Ltd, whereas ABROS Co Ltd and Group are audited by Eagle, a local audit firm. Eagle also provides other non-assurance services to ABROS Co Ltd and the Group, inclusive of Alex Co Ltd. The audit of the financial statements for Alex Ltd as at 31 December 2016 is shortly to be finalized but there are some material information that you have not received and Alex Ltd has a loss of MUR 5 million for the year end 31 December 2016 and an accumulated loss of MUR 175 million, and the stated capital is MUR 150 million. You have not yet received the financial support letter from ABROS Co Ltd, whereas the management of ABROS Co Ltd has verbally stated to provide the letter. But as at date, no such letter has been received at your office. ABROS Co Ltd, is an international company producing house cleaning chemicals. You have read in the newspaper, that one of the main producing factory of ABROS Co ltd, is subject to a major lawsuit following explosion in the reactors, due to poor quality chemicals, which has led to death of thousands of civilians in that country. The government of that country has ordered ABROS to stop all factories operations. Around 8 of the 15 factories were closed. There have been major redundancy costs for the Group. You requested the management of ABROS Co Ltd to provide you the claim amount for the GROUP, so that you can assess the GROUP continuity. As at date no such claim was forwarded to your audit firm, but an explanation was sent to your attention by management of ABROS Co Ltd, stating that the GROUP auditor has done their work and has provided satisfactory representations. When you enquire with the Group Auditor, the latter refused to give supporting evidence and also to confirm the claim. Furthermore, you have been requested by management and Auditor of ABROS Co Ltd, not to qualify the audit opinion of Alex Co Ltd. Page 1 of 6 Advanced Auditing - ACF3003 (5) Required: a. Discuss how professional skepticism should be applied to the statements made by the management and auditor of ABROS Co Ltd, regarding the legal case of the closure of the 8 factories following death of thousands of civilians. [10 marks) Comment on the ethical and professional issues raised, considering any implications for the audit, in respect of: The evidence obtained in relation to the financial support provided by ABROS [12 marks] b. i. Co Ltd to Alex Co Ltd. ii. The request not to qualify the auditor's report of Alex Co Ltd. [8 marks] PART B ABC Ltd is a large, private company which has been owned 90% by the Ah Kong family since incorporation in the year 1994. The audit is completed this year end 31 March 2017, and the finance Director, Mr James Ah Kong, is considering listing the company on the Mauritius Stock Exchange. E contacted your firm and wants an audit partner of your firm to work on the listing assignment. Currently, ABC Ltd board of directors is controlled by the Ah Kong family members. Given ABC Ltd is a private company it has no complied with the corporate governance and even does not intend to comply with same after listing on the Stock Exchange. Required: You are required to comment on the above information: The implications the governance structure and proposed listing on the Stock Exchange may have on the audit process. [10 marks] [Total: 40 marks)