Upon completion of your Honors degree in Accounting, you started your articles at Wolmarans Incorporated (Wolmarans) 3 years ago. At the start of the current year, you were promoted to Audit Senior. Wolmarans has 4 Audit Partners and 15 professional staff members. Their services include Audits and Assurance, Tax, and Accounting. Wolmarans is located in Stellenbosch.

You were assigned to the audit of Repair IT Ltd (Repair IT). This is the first year that Wolmarans is auditing Repair IT. The previous auditors resigned due to disputes between them and management regarding the correct application and disclosure of revenue. The Directors of Repair IT refused to elaborate on the matter and further rejected Wolmaranss request to obtain the previous auditors audit report. The Directors also declined permission for Wolmarans to contact the previous auditors.

Background Information

Repair IT is a listed company and has been listed for more than 5 years. Repair IT has 4 branches and all are located in the Western Cape. Repair IT repairs vehicles and they also have a service division where they service all vehicles based on bookings made by customers. Repair IT imports most of its inventory and machinery needed for the repairs.

Repair IT has a February financial year-end and requires the annual financial statements (AFS) to be finalised and signed by the 16th of June 2023. Repair IT has exhausted all its existing finance and overdraft facilities and needs financial sources to meet promises made to shareholders in terms of profitability and growth targets. To show their commitment to the future of the company, all six Executive Directors invested all of their personal savings in Repair IT and received equity in Repair IT in return. However, these savings were not sufficient, and additional external financial sources are needed. Repair IT also incurred losses in the last 2 financial years.

The Managing Partner of Wolmarans was school friends with the Chief Financial Officer (CFO) of Repair IT, and he has a significant shareholding in Repair IT.

Repair IT experienced a decrease in services delivered as a result of the load shedding implemented by Eskom. Management also expressed their concern in relation to the financial information that were lost due to damage to the information technology (IT) system as a result of frequent power cuts. These losses also included some of the live and backup data of the 2022 financial year. Furthermore, it is suspected that some of the IT personnel hacked into the IT system and gained unauthorised access to company information. Unauthorised changes were made to the employee masterfile to reinstate a number of retrenched workers. The Chief Information Officer (CIO) investigated the security breach and proposed to appoint an external IT company that can administer Repair ITs information technology system. This proposal was accepted by the Board and implemented in April 2022.

REQUIRED:

1.1 Discuss any factors that the partner in charge of the audit of Repair IT Ltd did not, but should have considered before accepting the audit. Conclude your answer by stating whether the audit of Repair IT Ltd should have been accepted or not by Wolmarans. (25 marks)

1.2 List only the applicable measurable input firm-level indicators that would assist Wolmarans Ltd in making the above decision. (5 marks)