You are an audit manager currently finalizing your 31 December2013 audits. The following independent and material matters havecome to your attention:
1. The audit of the statutory records of Whale Ltd, a reportingentity, revealed the following problems:
• Failure to update the members’ register for changesin shareholders;
• Failure to obtain written consent from directors toact;
• Directors’ minutes not prepared in respect of thecurrent year;
• Failure to hold the AGM in respect of the previousfinancial year.
The company made no comment in respect of either the failure tokeep properly updated statutory registers or the holding of theAGM.
2. Shark Ltd, a reporting entity, uses the last-infirst-out basis in respect of valuation of closing inventory, whichis one of the most significant balance sheet accounts. Thedifference between first-in first-out and last-in-first-out has amaterial effect on the closing inventory balance.
3. ABC Ltd (ABC) is a holding company with a numberof wholly owned subsidiaries. One of these, FX Ltd (FX), is aself-sustaining foreign subsidiary with manufacturing anddistribution facilities throughout South-East Asia. The groupaccounts of ABC and its subsidiaries consist of the consolidatedaccounts of ABC and its subsidiaries and exclude the accounts ofFX, which are attached separately.
The consolidated accounts include a note stating that the directorsbelieve that it is misleading to consolidate FX as its operationsare very different from those of the rest of the group and carriedout under substantially different conditions. The note includesdetails of inter-company balances and transactions.
REQUIRED:
Critically discuss in relation to each of the above circumstancesthe audit and internal control issues to be considered and theirlikely impact on the audit report to be issued.
