Audit client

Rivers Co has been an audit client of Welford & Co for eight years, and Bob Newbold has been the audit
engagement partner during this time.
This is inappropriate as a listed audit client can remain with same engagement partner for 7 years only,
after that, they either have to rotate to a new engagement partner or change firm of auditors.
This is because this may cause objectivity issues as engagement partner may already be familiar with
River Co system and may not notice any errors in FS made.
(mention familiarity threat)

There is also risk of self-interest threat as firm may not want to lose audit client, especially since Bob
Newbold is performing non-audit work for Rivers Co and receive very significant fee of $890k.
(explain more on why is a self interest threat)

Thus, Rivers Co should rotate their auditors after 7 years. Bob Newbold and team should also have
resigned as Rivers Co auditors after 7 years.

Welford & Co. has been auditing Rivers Co for more than 8 years. This is considered as a significantly
long period. The long association may give rise to familiarity threat where the engagement team and
audit partner, Bob is too familiar with the client.

The familiarity may impair the objectivity of Bob as an audit partner and lack of ability to exercise
professional skepticism as Bob may be reluctant to raise any issue during audit in order to maintain
goodwill with the client.

Further, the lack of time spent by Bob also indicates the lack of supervision and review of the assistant’s
work. Thus it is highly likely that the partner is not aware of have not reviewed closely significant audit
issues such as going concern which could have serious impact on the opinion of audit report.

There is also a risk of self interest threat where Bob is performing a special investigation on Rivers Co.
This is because the fee for the non audit work is significantly higher than the audit fee. Self interest
threat arises as Bob may be reluctant to modify opinion or raise any audit issue to secure the non audit
work fees.

In this case, the audit partner should be replaced with another audit partner to lower the familiarity
threat. If the same audit team has been auditing Rivers Co for the past 8 years, the engagement team
should also be replaced. Further, as Rivers Co complies with Corporate Governance and is a listed
company, the maximum amount of years audited by the same audit partner should only be 7 years and
the partner should be replaced after the period.
There is a significant audit risk on going concern which had been performed by an audit assistant who
have yet to be qualified.
Going concern is a complex issue which may require significant judgement to be exercised. A non
qualified audit assistant may lack the professional competence and skepticism to determine the issue.
The work should properly be supervised and reviewed by audit manager and partner.
Judging by the lack of time spent by both manager and partner, it is likely that the issue had not been
properly reviewed.

Time record spent by each audit team members

The time spent by each member of the team seems to be not being allocated appropriately. We can see
from the time recorded, the audit partner and senior audit manager have the least time spent among
other team members. This shows that there is a poor allocation of work being made among audit team
members.

It could be that the audit manager and other audit assistants may be assigned with the work that is out
of their credibility and ability, ie work that requires high degree of judgement, to perform such work.
Hence, the audit quality of client’s FS may be affected and this could also affect to the reputation of our
firm.

Quality Control Issue

Based on the time management system, the total time spent on audit of Rivers Co is only 173 hours.
Assuming that there are 8 hours per working day, the total time spent on audit of Rivers Co represent
only 22 days. This may be inappopiate because 22 days can be assume as insufficient for an audit firm to
audit a listed entity and Welford Co may cut down few audit procedure that lead to a lower quality of
audit. Supposedly, Welford Co should increase its total time spent on audit of Rivers Co to an appropiate
time for the next financial year end so that all audit procedure can be done completely and the opinion
issued will truly reflect on the audit procedure performed.

The audit work on going concern was performed by an unqualified audit assistant. It was determined
during planning that the going concern is a (

This is a poor practice as going concern audit requires a more detailed analysis, hence may lead to
inappropriate conclusions being drawn. The engagement partner should assign a more senior role to
perform the audit work, or supervise the work performed by Mary Loxley.

Bob Newbold booked a total of 40 hours to Rivers Co in respect of non-audit work performed. As Rivers
Co is a listed company, it is prohibited for the firm to also provide non-audit work, hence it has breached
the Code.
The only documentation regarding this non-audit work was only ‘special investigation’. There is
possibility that no service has been provided, instead it was an excuse to hide unethical activity such as
bribery.
As the fee amounted to $890,000 which is significantly higher than the audit fee itself, it could create
self-interest threat which can threaten the firm’s objectivity. The firm might be fear of losing its clients
since the fee would form a large part of the firm’s income.

Rivers Co is a listed company operating in the construction industry and Bob Newbold is the audit
engagement partner during this time.
For audit of a listed entity, it should involve two partners which are engagement partner and quality
control partner.
In this case, the firm might need to appoint another partner for audit of Rivers Co

Almost all of the details review of audit working papers was completed by Anesa Kineton who was
recently promoted to audit manager.
This is inappropriate as she may lack experience and knowledge to review most audit working papers as
she is newly promoted. There is a risk that she did not notice any errors made due to her lack of
experience and this may affect quality of audit.
Thus, review of audit working papers should have been performed by senior audit manager and audit
engagement partner to ensure reliability of audit opinion.

The audit work on going concern was performed by an unqualified audit assistant. It was determined
during planning that the going concern is a significant audit risk for Rivers co.

This shows an inappropriate audit planning when assigning tasks to audit members. This is because the
nature for the audit of going concern status for Rivers co. would require high degree of professional
judgment from a more experienced audit member.

It is unlikely that an unqualified audit assistant would have the competency to sufficiently challenge the
management’s assumptions in their forecasts. This can be seen where Mary Loxley uses assumptions
from the previous years to conclude on the review of the contracts.

This is a poor practice as going concern audit requires a more detailed analysis, hence may lead to
inappropriate conclusions being drawn. The engagement partner should assign a more senior role to
perform the audit work, or supervise the work performed by Mary Loxley