You CPA, work for a large public accounting firm, Hans &Co. LLP (HC), with many offices across the country. As part of your new job as a senior manager in the national office, you have been assigned to do a quality control review of the Fresh Foods Grocery Store Ltd. (FFGS) audit recently conducted by your Halifax office.

FFGS is a wholesaler of organic food products. Your firm has been auditing FFGS for the past six years ago. Your firm issued an unqualified audit opinion on the December 31, 2021, financial statements.

The following are your notes from the review of FFGS’s December 31, 2021, year-end audit file:

·The audit team was led by Cherie Segal, who obtained her CPA designation in 2018 while working at a small firm. Cherie left the accounting firm in January 2020 and joined FFGS as the controller. After about a year Cherie realized that she really missed public accounting and in May 2021 quit FFGS and joined HC. The HC audit partner, James Khan, personally selected Cherie to lead the FFGS audit. James thought that Cherie’s extensive understanding of the food business and her extensive knowledge of FFGS’s internal controls would be of great value in the conduct of the audit. Cherie had the help of two assistants, Irwin Tobias and Anna Stein .

• Cherie thought that on-the-job training was one of the best forms of professional development. She decided to let Irwin and Anna perform all of the audit fieldwork and resolve all audit issues. Cherie would not provide any direction to them until the audit was completed, at which time she planned on reviewing the file and providing her feedback. She was confident that they were ready to take this step in their professional development as they were considered very bright and had both done well in their auditing courses at university.

• The current year’s audit working paper files were well organized. However, in November 2021, HC’s main server crashed and the previous year’s soft copy working papers and the soft copy permanent file were lost. HC’s IT department was still working on the recovery of the files at the time of the audit. The files were never recovered. After much searching, Anna found the hard copy HOF 2020 audit file. The hard copy file that she retrieved only included specific documents that were required to be kept in hard copy form (ie. signed engagement letter, signed accounts receivable confirmations).

• Since the prior year's audit files could not be located, Anna asked Susan Bam, FFGS’s assistant controller, for information on the prior year’s audits. Susan indicated that the FFGS audit has never had any significant problems. Susan explained that as a result of internal control weaknesses, HC did not rely on controls. She also, indicated that in last year the audit assistant told her materiality was $50,000. Anna concluded that since there had not been any changes to FFGS’s operations in the current year it was appropriate to use the same materiality level and audit approach from previous years. Anna decided not to perform any procedures on internal controls since they were weak and she had no intention of relying on them.

• In late 2020, FFGS suffered a significant drop in sales due to a recall of organic spinach and strawberries that were tainted by the e-coli. Given FFGS’s drop in sales, the audit partner gave FFGS a 20% reduction in its audit fees for 2021.

Required:

Evaluate the quality of the FFGS audit engagement by identifying any deficiencies in the application of generally accepted auditing standards ( principles underlying a financial statement audit as set out in CAS 200) for the conduct of the December 31, 2021, financial statement audit. For each of the deficiencies, identify which standard was violated and explain.