Explain why it is important for auditors to communicate with those charged with governance.

Problem 1

A. Yaso plc is a manufacture company and its financial year ended at 31st December 2019. Total assets are 40m and net profit before tax is 12m. Yaso plc`s trade receivables ledger includes a large number of customers. The year-end trade receivables balance is 4m (comparable to 2m in 2018) and the allowance for trade receivables is 400,000 (comparable to 600,000 in 2018).

Requirement:

Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Yaso plc`s trade receivables.
B. According to ISA 260, it is important for auditors to communicate throughout the audit with those charged with governance.

Requirement:
Explain why it is important for auditors to communicate with those charged with governance.

Identify three examples of matters which the auditor may communicate to those charged with governance.

Problem 2
A. Auditors can only control the level of detection risk as the inherent risk and the control risk are out of auditors` control.

Requirement:
Discuss the differences between the three types of risks with an explanation of why auditors can only control the detection risk.

B. You are currently planning the audit of your client, DEF plc. Its year end is 31 December 2019 and the forecast profit before tax is 15.5 million.

DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company`s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc.

Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team members are not enough to attend the counts in all the locations.