Ican 2025 Advanced Audit And Assurance Question 6

As part of the requirements of the International Standards on Auditing (IAS), before commencement of any statutory audit, Cole & Co (Chartered Accountants), the external auditor to Tanke Pharmaceutical has held a pre-audit meeting with the Audit Committee of the company on the scope, timing of the audit and communication of likely significant risks identified by the auditor during the risk assessment process. Tanke Pharmaceuticals has being experiencing theft of finished products in the previous year to the extent that some of its products were sold at cheaper prices outside the company’s premises which created problem for distributors of the products leading to loss of revenue for the company. The marketing teams were also accused of collecting commissions and transport expenses which did not reflect in the sale proceeds achieved by them. There was increase in payables for inventory items purchased, which were in most cases not delivered. Added to the above, there was a huge suspense receivable account balance emanating from information technology update in the books of the company. The members of the Audit Committee believe that if the auditors had done their work as expected, such issues would have been discovered earlier. A member of the Audit Committee doubted whether the new and revised standards issued by the International Auditing and Assurance Standards Board were being applied on the audit of the company or even whether expected audit strategies were followed. A suggestion was made that rather than increasing audit fee in line with inflationary pressure as requested by the auditors, the company should rather reduce audit fee to compensate for the loss due to their (auditors’) negligence. The members of the Audit Committee were supposed to meet at least five times in a year, but they met only three times and when they met, they hardly spent enough time to go through internal audit reports or review management accounts. Only one member of the Audit Committee is financially literate. The directors’ meetings were rarely held, as most of them (directors) went on long overseas vacations, thus leaving the operational activities of the company totally to the discretion of management. The member of the audit committee were of the opinion that the management letter issued by the external auditors should have provided detailed internal control weaknesses which they would have acted upon.