Question

2) The Audit firm Dewy, Cheatham, & Howe has been asked to perform an attest audit of
Seriously Crook Puppy Investments (SCPI) Ltd (an investment firm that has been registered
with ASIC for 10 years).
Your early assessment of SCPI Ltd indicates that it has a high-risk business environment
(0.85), poor to none existent internal controls (0.95), and the detection of problems during
any reasonable level of audit is very poor (0.75).
Required:
a) List and discuss what you need to consider before accepting the SCPI Ltd audit
engagement.
b) Show the audit risk model and use it to estimate and evaluate the audit risk of the SCPI
Ltd Audit engagement.
c) If your firm’s Audit Risk tolerance is 0.15, would you accept the audit? Explain  

Answer 1

(A) We need to consider before accepting the SCPI Ltd audit engagement is that whether management of SCPI ltd has properly used acceptable FRF And also we consider about the acknowledgement by management of its responsibilties

Management Responsibility with respect to

Prepration of Financiial statements as per FRF

Presentation of Financial St. as per applicable FRF

Acknowledgement about the internal controls so that financial statements should be free from fraud and error

They Provide us to Access all the information and additional information and unrestricted access to the persons if needed

And if these conditions are not present then we can accept the audit or management can imposes limitation over our work

(b) Audit risk model is that we may check the opening balances and mainly we focus on the transactions done on near end of audit and we can check that there is no negative cash in the financial statements and whether the internal controls are suffficient and if not the we can increase it and make it effective

As early assessment states that it is a high business risk environment so we manily focus on the transactions containing risk and also proper provisions have to be made or not

(c) IF there is a 0.15 audit risk tolerance then we can not accept the audit because there is high chance of fraud There are many incorrect transaction and also there is very much time required for audit in this case as there is more chance of fraud so we are needed to check every thing very polietly and also it is very time consuming and there are some audit limit limitation and if due to which we are unable to find fraud we may aslo get gulity