Question

Your firm has been appointed for the first time to carry out the audit of Sarooj Construction, a small
construction firm in Muscat, for the year ending December 31, 2019. Sarooj Construction has been in
operations for the last five years. It was doing well on the first two years but competition affected the
business and they started to struggle from the third year up to this year, their fifth year in operation.
As part of knowing the business, you communicated with their previous auditor. Your
communication revealed that previous test of controls done indicated material weakness in the cash
receipts from customers and disbursement for expenses. As the business is small, Sarooj
Construction was not able to build stability and has been facing continuous losses since last year.
The owner has been trying hard to improve the situation. He hired a manager who has been given
wide powers for hiring and firing the staff and make all significant business decisions. The owner is
aware that weak financial position will prevent the company from obtaining financial assistance from
banks especially now that they need it. Furthermore, the owner is considering creating an internal
audit department to improve their internal control. The owner expects to receive a report on
weaknesses on the design and implementation of internal controls on top of the usual audit of
financial statements.
Required: Discuss matters that you would consider in developing the audit strategy for Sarooj
Construction.

Answer 1

Answers:-

Matters that would considered in building up the audit methodology for Sarooj Construction

• Information on the Business :-

1):- General economic components and industry conditions influencing the element's business.

2):- Important qualities of the element, its business, its financial presentation and its announcing prerequisites including changes since the date of the earlier audit.

3):- The general degree of fitness of the board.

• Understanding the Accounting and Internal Control Systems :-

1):- The accounting strategies embraced by the element and changes in those approaches.

2):- The impact of new accounting or auditing declarations.

3):- The auditor's combined information on the accounting and inward control frameworks and the relative accentuation expected to be set on trial of control and considerable techniques.

• Risk and Materiality :-

1):-The normal evaluations of characteristic and control risks and the ID of critical audit regions.

2):- The setting of materiality levels for audit purposes.

3):- The chance of material error, including the experience of past periods, or extortion.

4):- The distinguishing proof of complex accounting regions including those including accounting gauges

• Nature, Timing and Extent of Procedures :-

1):- Possible difference in accentuation on explicit audit regions.

2):- The impact of information technology on the audit.

3):- Crafted by inner auditing and its normal impact on outer audit methodology.

• Coordination, Direction, Supervision and Review :-

1):- The contribution of different auditors in the audit of parts, for instance, auxiliaries, branches and divisions.

2):- The contribution of specialists.

3):- The quantity of areas.

4):- Staffing prerequisites

• Different Matters :-

1) :- The likelihood that the going concern suspicion might be liable to address.

2) :- Conditions requiring uncommon consideration.

for example, the presence of related gatherings.

3) :- The details of the commitment and any legal obligations.

4) :- The nature and timing of reports or other correspondence with the substance that are normal under the commitment.