Question

EXPRESS COMFY Case Study: Express Comfy Co. operates an airline business since few years ago. The company’s year-end is 31 December of each year. You are the Engagement partner in charge and you have started planning the audit. You are setting a meeting with the client to identify any relevant audit risks. From your meeting you came across the following: In order to expand their flight network, Express Comfy Co will need to acquire more aeroplanes; they have placed orders for another six planes at an estimated total cost of QR70 millions and the company’s CEO has requested from the procurement director to handle this matter. Accordingly, the Procurement Director assigned Mr. Hamad ALKaaby to handle this transaction. Due to his prolonged experience and the trust the company is having in Mr Hamad, the Procurement Director has delegated all power and authority to Mr Hamad with no need to return back to him during the processing of this transaction. Mr. Hamad is now the one communicating with the vendors (suppliers), preparing the invoices, following up on things, and he is the one to check the fleet of planes when they arrive to ensure they meet the quality standards set by the company. In addition, the company has spent an estimated QR50 millions on refurbishing (restoring) their existing planes. In order to fund the expansion, the Finance Department has applied for a loan of QR80 millions. It has yet to hear from the bank as to whether it will lend them the money. Notably, the CFO of the company has assigned four accountants from the finance department to handle the processing of this loan request. Four accountants have been assigned due to the fact that Ms. Reem Almansoury, the Chief Internal Auditor of the company, is currently on vacation and one of these four accountants has been asked to cover for her during her absence. The company receives bookings from travel agents as well as from individuals directly via their website. The travel agents are given a 90-day credit period to pay Express Comfy Co, however, due to difficult trading conditions a number of the receivables (travel agents) are struggling to pay. Furthermore, and due to the complexity of the online transactions, Engineer Ahmed El-Sabbahy has been assigned to handle these transactions, who in turn is responsible for all the online transactions with no other control procedures to protect the company from any sort of errors and/or fraud. Worth noting too, the website was launched few months ago and has consistently encountered difficulties with customer complaints that tickets have been booked and paid for online but Express Comfy Co has no documented record of them and hence has sold the seat to another customer. For this reason, the company is currently in communication with an external expert IT company to look into this issue. Based on the previous key facts concerning Express Comfy, you are required to submit a report that covers ALL the following points:

1. Identify the pre-conditions that should have been met before accepting Express Comfy as a client. You are also required to state the contents of the engagement letter highlighting the role and responsibilities of each party involved.

2. Outline the members of the audit team who are expected to audit the records of East Comfy highlighting the role played by each of these members

. 3. Outline the steps involved in the audit cycle as well as the audit strategy and relate these to East Comfy. ) 4. Outline the main procedures involved in setting the audit plan(s) for Easy Comfy.

Answer 1

1.The auditor must determine the acceptability of the financial reporting framework to be applied in the preparation of the financial statements, evaluate whether law or regulation prescribes the applicable financial reporting framework, considering the purpose of the financial statements, and the nature of the reporting entity .

Second, the auditor must obtain the agreement of management that it acknowledges and understands its responsibility:

• For the preparation of the financial statements in accordance with the applicable financial reporting framework.
• For internal controls to enable the preparation of financial statements which are free from material misstatement, whether due to fraud or error.
• To provide the auditor with access to all information necessary for the purpose of the audit.

The contents of an engagement letter will be decided in the light of requirements of each client, but every such letter would normally cover the following matters:

1. Auditor’s responsibilities.
2. Management’s responsibilities.
3. Scope of Audit.
4. Management’s representation.
5. Irregularities and fraud.
6. Other services.
7. Fees.
8. Client’s confirmation.

2.Engagement partner : in charge of planning the audit.

Four accountants have been assigned due to the fact that Ms. Reem Almansoury, the Chief Internal Auditor of the company, is currently on vacation and one of these four accountants has been asked to cover for her during her absence

Engineer Ahmed El-Sabbahy has been assigned to handle complex online transactions

3.

1. Define Audit Objectives. Prior to the audit, AMAS conducts a preliminary planning and information gathering phase. ...
2. Audit Announcement. ...
3. Audit Entrance Meeting. ...
4. Fieldwork. ...
5. Reviewing and Communicating Results. ...
6. Exit Meeting. ...
7. Audit Report.

4.

Step 1: Planning

The auditor will review prior audits , research applicable policies, prepare a basic audit program to follow.

Step 2: Notification

l notify the appropriate department regarding the upcoming audit and its purpose, at which time an opening meeting will be scheduled.

Step 3: Opening Meeting

This meeting will include management and any administrative personnel involved in the audit.

Step 4: Fieldwork

This step includes the testing to be performed as well as interviews with appropriate department personnel.

Step 5: Report Drafting

After the fieldwork is completed, a report is drafted.

Step 6: Management Response

Management responses should include their action plan for correction.

Step 7: Closing Meeting

The audit report and management responses will be reviewed and discussed. This is the time for questions and clarifications. Results of other audit procedures not discussed in the final report will be communicated at this meeting.

Step 8: Final Audit Report Distribution

After the closing meeting, the final audit report with management responses is distributed to department personnel

Step 9: Follow-up

The purpose of this review is to conclude whether or not the corrective actions were implemented.