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Question 1.

1.1

5% of the total assets would be considered material.

Revaluation of assets involves judgements.
This presents a management threat as it should be the management's job to value the assets.
The audit firm may become to closely aligned with the view of management.
As the information relates to financial information which would be looked at as part of the audit, therefore it presents a self-review threat.
The auditors would be unlikely to criticise their own valuation. This threatens independence.
Therefore, the audit firm should decline the engagement.

1.2

To ensure that areas which have been identified as audit risks are given the correct amount of attention.
To ensure persons with the required knowledge are involved in the audit.
As the audit progresses, the areas of audit risk may change and therefore the materiality should be adjusted and sample sizes and areas
need to be changed.

1.3

Companies are required to keep detailed documentation of all evidence carried out as part of the audit engagement.
Futher guidelines where issued as to what would require the audit to be modified.

1.4

The results of the subsidiaries is material to Siskin plc and therefore if the audit evidence obtained is not sufficient for the component
auditors then the financial statements may include material mistatements themselves which would further impact on the FS of Skiskin plc.
Communication with the auditors of the component auditors should take place.
The firm should review the audit plan and strategies of the component auditors.

1.5

ICAEW Code of Ethics states that professional accountants maintain professional competence and due care. This will be compromised as
John has not got the experience and skill to carry out the audit for Toucan plc and thus the quality will be compromised.
John has compromised the principle of integrity which means to be straightforward and honest in all professional and business
relationships. John has lied about his experience.
This brings into question his integrity and if he would be able to carry out the audit independently and objectivity.

1.6

An modified audit opinion would have to be issued.

A paragraph would have to be included in the auditors report stating that management refused to provide written representations.
The firm would have to reassess the integrity of the management of Pengiun Ltd and assess whether areas of the audit would need to be
reassessed.
Impact on the financial statements as a whole would need to be considered.
Areas which require managements judgements such as valuation need to be reassessed.
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Question 2

2.1
Familiarity threat is the threat that due to a long or close relationship with a client, or employing organisation, a professional accountant will be
too sympathetic to their interests or too accepting of their work. Familiarity threat may impair objectivity and independence.
With regards to Mallard, Jack Bird was the audit manager for previous four years until becoming the financial controller of Mallard. Lorna Linnet
has been the engagement partner for five years. The previous engagement partner as become chair of Mallard's audit committee.
As a listed company, the engagement partnern should be rotated off the engagement after 5 years except for in limited circumstances. The
extension of two years may be allowed if it maintains audit quality, however it cannot be for any longer. The Ethics partner should be notified of
the situation and review the audit procedures and safeguards to be implemented. Other safeguards include having an expanded independent
quality control review. The firm should assess the threats to objectivity, integrity and independence and apply safeguards, if the safeguards
cannot be applie the firm should resign as auditors.

2.2
Going Concern
There has been a significant decrease of £295m in profit before tax from the prior year. There has also been significant reliance on bank loans.
Analytical procedures should be used to compare the liabilities of Mallard against the assets.
Mallard has lowered its prices which indicates potential cash flow problems as the income will be reduced. Competitors are improving efficiency
and reducing costs and as a result can bid for contracts a lower prices, however, Mallard has lowered it prices but there is not indication of
lowering costs. Cost of sales has increased by £2483 million. The gross profit margin has decreased from 22% in 2020 to an estimated 16% in
2021. Mallard has started work on several contracts with low projected profit margins which implies that the company will not be receiving much
revenue in the future. This may cause a problem when Mallard are required to repay the bank loans. As well as this, if the banks perceive that
Mallard's projected revenue is not enough, they may withdraw their loan or request immediate repayment. This could cause compromise
Mallard's ability to continue business.
Mallard requires an initial payment of 30% and the rest of the balance is obtained following completion of the work. There is a risk that the
contract will be discontinued mid way through. However, most of the costs would have already been incurred by Mallard and 70% of the
revenue will not be received from the customer.
As the equipment is old and unreliable there is increased risk of the company incurring costs from having to replace broken equipment. This
could cause cash flow issues. The firm should carry out an inspection of the equipment to assess whether it is being valued correctly and
inspected for impairment.
As Mallard has been criticised in the media there is a chance that customers may be put off from using Mallard thus creating less work for
Mallard which may decrease their income and compromise their ability to continue as operations.
The overdraft facility is due for review. As the bank are requesting profit and cash flow forecasts the bank may not perceive the company as
being in a good enough position to continue with the overdraft facility. This could cause problems as the company heavily rely on the overdraft
and without this it may cause cash flow issues for the company.

Accrual for Directors' bonuses

These are classified as a related party transaction and therefore are material by nature. The bonuses are also material as they are awareded at
rates of between 0.5-1% of revenue. As well as this, cumulatively this could be a significant proportion of the revenue. The financial position
has a decrease of 55 million from the prior year in accrual for director's bonuses, which indicates they may be understated. As they are included
as accruals the auditors should recalculate the bonuses and check that the correct proportions and amounts have been included in the financial
statements.

2.3
The auditors report will have to include a modified opinion with an extra paragraph outlining that the directors refused to include a fair review in
the strategic report.

2.4
a. The reputation of the firm could be in jepoardy. Mallard may start legal action against the firm.
b. Documentation should be kept of all audit procedures and audit plan and strategy.
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Question Three:
3.1
Revenue recognition is a key audit risk. The sales contracts includes a range of services which need to be allocated to revenue appropriately.
Overheads need to be allocated and apportioned.

3.2
a.
In January Cost of Sales comprises of 39% of the income however, in February cost of sale only comprises 19%. This is a significant decrease
which may indicate an understatement of cost of sales in February. In December there has been a significant increase in income in comaprison
to the cost of sales indicating either an overstatement of income or understatement of cost of sales, must likely the latter. October has a much
higher cost of sales compared to the other months which may indicate an overstatement.

b.
The limitations include that the analytical procedures are only as reliable as the data and system with which they are obtained from.
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Question 4:

4.1
The communcation should be in writing and be communicated on a timely basis. A desciption of the deficiences and an explanation of their
potential effects. Sufficient information should be included to enable those charged with governance and management to understand the
contect of the communication. For listed companies in certain jurisdictions those charged with governance may need to receive the auditor's
written communication before the date of approval of the financial statements. For other entities, the auditor may issue the written
communciation at a later date.

4.2
a. Good may be accepted which are of sub-optimal quality or impaired. This may cause a lot of wastage and increase the cost of sales. A policy
should be implemented where the goods are inspected upon delivery before being accepted and any goods which are not up to standard
should be returned to the supplier.
b. The gold and platinum stored may be stolen. As they are not stored securely an insurance claim may not be accepted. Therefore, this could
lead to a significant loss in inventory and assets. As well as this revenue would be affected as sales would not be able to be made. The gold
and platinum should be stored safely and locked in a place where only the necessary people have access.The poisonous chemicals with
unrestricted access may mean that either a member of public or a employee may encounter these chemicals and become ill or have adverse
effects. This could cause a legal claim which would lead to a significant pay out as well as a bad reputation and name in the media. The firm
should ensure that these chemicals are kept in a safe and secure restricted area and closed where possible. Access should be prohibited
except to those who need and training should be given on safety.

4.3
As the auditor was unable to obtain sufficient appropriate evidence, therefore there has been a limitation of scope, so the firm should issue a
modified audit. This was resitricted to one area of the audit in the inventory and therefore is unlikely to be material so it is not pervasive so a
qualififed audit opinion should be given.