You are an audit senior at Trumps Auditors Incorporated B&K currently involved in the finalisation stage of the statutory annual audit of Pfixer and its two subsidiaries, Moderney Medical Scheme and Lohnson and Lohnson which produced vaccines for Covid Monkey pox and the HIV virus for the financial year ended June

All the pharmaceuticals are listed on the Johannesburg Stock Exchange JSE listed company in the health care industry of South Africa with Moderney being on the Alternative Stock Exchange AltX They recently branched off their operations to invest

in Neural ink, a brain chip that would help the crippled and visually impaired. Quite recently a paraplegic had gained full function of their arms, back and legs due to this new technology.

The final materiality for the statutory annual audit is set at R billion for Moderney was R billion for Lohnson and Lohnson for the consolidated financial statements of Pfixer.

Moderney is an independent nonprofit medical scheme governed by the Medical Schemes Act and regulated by the Council for Medical Schemes. It has assisted United nations in various wars in the Democratic Republic of Congo, Palestine, Ukraine and Libya. It has a good record of diligently paying their clients qualifying medical costs and providing excellent service to its members.

By separating medical scheme and administration functions between Moderney and Lohnson, the Pfixer group of companies has been able to gain a significant competitive advantage by expanding its offerings to the health care market without contravening the Medical Schemes Act. These services and products include for example the purchase and repackaging of vitamins as well as endorsed weight management products leading to huge profit margins.

Several pharmaceuticals entered into the market reducing Pfixer profit margin. In order to secure their share prices, Pfixer doubled the actual value of their earnings per share. You found discovered that the CEO of Pfixer Lucius Black substituted important ingredients in their vaccines with cheaper less efficient ones. Moreover, they had exaggerated the efficacy of their vaccines. A decision was taken at a board meeting before year end, to procure the necessary repackaging and labelling old drugs and marketing them as new innovations that would cure mental illness. Lucius had a of Pfixers while his son held Lucius emoluments were not disclosed in the notes to financial statement.

His best friend Vivek headed the audit committee. Lucius and Vivek had extravagant holidays spending up to R million which they justified as necessary since they brought in billion dollar revenues. Hunter his stepson owned the marketing company that rebranded and advertised the old drugs as new, exaggerating their efficacy. Hunter gave his father a lucrative discount. A whistleblower working in the laboratories recently died in a car crush.

REQUIRED

a Determine whether a reportable irregularity exists in terms of the Auditing Profession

Act regarding Pfixers operations.

b Recommend an audit engagement strategy suitable for this scenario.

c Discuss the audit evidence and sampling techniques you would use in this case

study.

d Show how you will use information technology throughout the audit process?