Q1 MERCURIO

TO:
FROM:
DATE:
SUBJECT:

INTRODUCTION:

MATERIALITY:
The audit engagement partner has asked to base the materiality level
on the basis of profit before tax as that is the most appropriate
method. The materiality level of Profit before tax based on
benchmarks is 5-10%
5%*60 = 3m 10%*60= 6 m

Although the business is an existing client of the firm it has taken a

sufficient amount of bank loans increasing its risk for which we will
assess its materiality on 5% which is $3m

BUSINESS RISKS:

Animal sale:
The company sells small animals such as rabbit and fishes and there is
a risk that animal standards are not met. The animals need to be
stored in proper and hygienic place so they can be kept safe and there
will be less risk of spread of diseases due to their storage. If animals
won’t be properly treated there is a huge risk of animal welfares and
activists to raise issues on this and harming company’s reputation. The
company should also take regard of suppliers it is buying animals from
and whether the animals they are selling were ensured proper welfare
and that they follow ethical breeding practices.

Veterinary Clinics
Q2 WINBERRY

TO: Audit Engagement partner

FROM: Audit Manager
DATE: Today
Subject: Audit planning in relation to Winberry Co.

Introduction:
This briefing notes have been writtento assist the audit planning of
Winberry company for the financial year ending 30 September 20X5.
These notes provides details about business and ROMM in priority
faced by Winberry

BUSINESS RISKS
International Expansion:
The business is planning to expand in foreign markets. The
international markets have different laws and regulations as compared
to the home markets.
It will be difficult for company to set up in new markets, finding good
suppliers, employees, setting up a new customer base. This task
Q7 RYDER GROUP

TO Engagement Partner
FROM: Audit Manager
DATE: Today
Subject: Planning regarding Audit of Ryder Co

Introduction:
These briefing notes are written to assist in the planning of group
audit of Ryder co for the year ending sep 20x5. These notes explain
the audit risks which are also occurring due to restructuring and the
information required for the audit. The risks are written in a prioritised
order according to the impact and likelihood of these risks.

Materiality:
The overall materiality level for the audit is based on its profitability
level which is $1.5m

Justification:
The audit client is although an existing client of the firm but it has
highly invested in drive-through coffee shops and is also changing the
structure of the company which can create control risks and ROMM
requiring the materiality level to be set at the lower of the benchmark
which is
5%*20m= $1m 10%*20m= $2m

AUDIT RISKS
Group Restructuring
Ryder Co is planning to dispose of its subsidiary Primal Burgers Co
which is currently earning 30% of revenue for the company and is a
material amount to the company

According to IFRS 5 Non current assets held for sale and discontinued
operations, Primal Burgers should be recorded as Discontinued
operations in the P&L at fair value of $85m and recording a loss of
$10m in P&L as 95-85. Recording the amount in revenue will give an
inappropriate image of the FS to the group and thus increasing the
revenue amount in the P&L
Q16 ADAMS GROUP

TO Engagement Partner
FROM Audit Manager
DATE Today
SUBJECT Planning the audit of Adams Group

INTRODUCTION
These briefing notes are prepared to assist in the planning of the audit
of Adams Group for the year ending 31 May 20X5. The notes contains
the significant audit risks which affect the Adams Group Financial
Statements. The audit for subsidiary Lynott is not done at our end but
we have

MATERIALITY
The materiality of the group has been set using the profitability of the
group which is set at $560,000 using profitability as requested

JUSTIFICATION
As Adams group is the new client, the inherent risks are increased due
to which the materiality is assessed at the lower end of the
benchmark.
The materiality levels calculated are
11200*5%= 560,000 11200*10%= 1120,000

a) AUDIT RISKS:

New Audit Client:

Adams group is the new Audit client of our firm due to which there is
an increased detection risk. The firm is not aware of previous years
financials and there is a risk of opening balances.However, through
proper planning the company can make its way through and
understand the group. The subsidiaries individual assets holding in the
group are, 20% of Ross, Lynott 22.3% and Beard having 26%.

The firm needs to calculate ratios to analyse the trend and compare it.
Revenue

Intangible Asset - Brand

The brand name which company has acquired is an intangible asset as
it fulfils the recognition criteria of intangible, i.e, it gives economic
benefit to the company and can be separately recognised.

The brand is recognised at original cost as per company’s policy and

has not been amortised over the years as it is considered by the group
that is very strong and will not be amortised. The group is using
marketing to support the brand and keep the brand name.

According to IAS 38, intangible assets are to be amortised over its life,
unless it has infinite life. Even if the brand has infinite life it is needed
to be rechecked each year for impairment. If the asset is impaired it
should be written at that cost. There is an audit risk that management
is not amortising the asset to portray a better image of assets and
brand.
Q18 TONY GROUP

A) Professional scepticism is referred as keeping a questioning mind

which is very important during the audit.

The audit of Financial Statements prepared by management can have

misstatements caused by error like omission or due to fraud which
conceals the actual amount.

Professional Accountants need to be professionally sceptical in

relation to the audit by performing audit procedures, like analytical
procedures and comparing the treatments and amount to previous
years, using test of details on the matters they think are not properly
disclosed or can be materially misstated. Professional scepticism is
required at all stages of audit to reduce the risk of material
misstatement in audit to an acceptable level
Q19 MARLOS

- Lease papers which states the date lease was issued and the period
-Bank evidence that payment has been made
-Depreciation policy
Q20 GELLER & CO

a) The management of Geller & Co have made several assumptions in

regards to the working of business.

According to the management of Geller and Co the forecasted sales

are to be increased by 2% each six months which is after taking digital
books and magazine sales in consideration. The management is
confident of the sales but they haven’t taken into account that it is still
dependent on authors approval. If authors do not approve of this the
revenue won’t be earned.
In the cash flow forecast prepared the royalties to be paid to authors
are missing which is 5% of revenue
Q28 CORAM & CO

Lease Equipment
-material amount to FS 20.7% to PBT & 2.2% to total assets
-consistent method
-short term amount

Legal Claim
Disclosures need to be made
Q36 DARREN

A)
Matters
The bridge construction for Flyover Co is an ongoing process. The
Darren Co is to be received the contract price of $20m and estimated
profit of $5m which is recorded by the company in its P&L.
This revenue should be assessed in accordance with IFRS15 Revenue
from Contracts, according to it profit couldn’t be recorded unless the
profit is probable to be earned, the contractual terms on which profit
is set has been fulfilled or probable to be fulfilled. The project still has
8 months in completion due to which it doesn’t seem confirmed that
profit can be earned.
Management should assess the probability of earning the profit and if
its not probable then the $5m recorded profit should be removed
from the SOPL.

-contingent liability should be recorded in the F.S of $40 m

-should check board meeting minutes about legal provision
-discuss with lawyer about probability