You are the audit manager of Overseas Explorer Ltd (OEL), which acquired the small

proprietary company Local Pty Ltd (Local) on 30 June 2018. The price of the acquisition was

agreed at $5 million, on the condition that OEL is satisfied with the financial records of Local.

As Local is a small proprietary company, it has not prepared statutory financial reports or

undergone an audit since its incorporation in 2016. However, Local has agreed to allow your

firm, which is the auditor of OEL, to access its books and records. The CEO of OEL, Wendy

Champion, has requested that your firm provide assurance on the following three items:

The management accounts for the year ended 30 June 2017

All transactions occurring from the date negotiations commenced until the settlement

date, to ensure that all transactions were within the normal course of operations

The financial report prepared at the acquisition date of 30 June 2018

In order to clarify your responsibilities, you requested that OEL indicate the level of

assurance that they require for each item. Wendy replied that the financial report as at

acquisition date is very important, as are the transactions since negotiations commenced,

but that she is willing to have less work done on the previous year's management accounts