On 1st May, 2024 you are engaged to audit the financial statement of Giant Pharmacy for the period ending 30th December 2023. The Pharmacy is located at Mgeni Nani at the outskirts of Mtoni Kijichi in Dar es Salaam City. Materiality is judged to be TZS. 200,000/=. During the audit you found that all tests produced clean results. As a matter of procedures you drafted an audit report with an unmodified opinion to be signed by the engagement partner. The audit partner reviewed your file in October, 2024 and concluded that your audit complied with all requirements of the international standards on auditing and that; sufficient appropriate audit evidence was in the file to support a clean audit opinion. Subsequently, an audit report with an unmodified opinion was issued on 1st November, 2024. On 18th January 2025, you receive a letter from Dr. Fatma Shemweta, the Executive Director of the pharmacy informing you that their cashier who has just absconded has been arrested in Kigoma with TZS. 8,000,000/= cash. He was trying to escape into the Democratic Republic of Congo. Preliminary investigations carried out by the police shows that more than TZS 70,000,000 has been misappropriated in a period of three years. The Executive Director was wondering how was it possible for your audit firm to overlook such a fraud, and how could you justify the clean audit opinion that has just been issued. Required With reference to the above case explain the following (a) The objective of an audit of financial statements (4 Marks) (b) The roles and responsibilities of management on the financial statements (4Marks) (c) The roles and responsibilities of the auditor on the financial statements (4 Marks) (d) The purpose of the audit engagement letter (10 Marks) (e) The inherent limitations of an audit (4 Marks) (f) The difference between Audi risk and audit failure (4 Marks) (g) Compare and contrast Porter’s and ACCA models of Audit Expectation Gap (20 Marks)
On 1st May, 2024 you are engaged to audit the financial statement of Giant Pharmacy for the period ending 30th December 2023. The Pharmacy is located at Mgeni Nani at the outskirts of Mtoni Kijichi in Dar es Salaam City. Materiality is judged to be TZS. 200,000/=. During the audit you found that all tests produced clean results. As a matter of procedures you drafted an audit report with an unmodified opinion to be signed by the engagement partner. The audit partner reviewed your file in October, 2024 and concluded that your audit complied with all requirements of the international standards on auditing and that; sufficient appropriate audit evidence was in the file to support a clean audit opinion. Subsequently, an audit report with an unmodified opinion was issued on 1st November, 2024. On 18th January 2025, you receive a letter from Dr. Fatma Shemweta, the Executive Director of the pharmacy informing you that their cashier who has just absconded has been arrested in Kigoma with TZS. 8,000,000/= cash. He was trying to escape into the Democratic Republic of Congo. Preliminary investigations carried out by the police shows that more than TZS 70,000,000 has been misappropriated in a period of three years. The Executive Director was wondering how was it possible for your audit firm to overlook such a fraud, and how could you justify the clean audit opinion that has just been issued. Required With reference to the above case explain the following (a) The objective of an audit of financial statements (4 Marks) (b) The roles and responsibilities of management on the financial statements (4Marks) (c) The roles and responsibilities of the auditor on the financial statements (4 Marks) (d) The purpose of the audit engagement letter (10 Marks) (e) The inherent limitations of an audit (4 Marks) (f) The difference between Audi risk and audit failure (4 Marks) (g) Compare and contrast Porter’s and ACCA models of Audit Expectation Gap (20 Marks)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
On 1st May, 2024 you are engaged to audit the financial statement of Giant Pharmacy for the period ending 30th December 2023. The Pharmacy is located at Mgeni Nani at the outskirts of Mtoni Kijichi in Dar es Salaam City. Materiality is judged to be TZS. 200,000/=.
During the audit you found that all tests produced clean results. As a matter of procedures you drafted an audit report with an unmodified opinion to be signed by the engagement partner. The audit partner reviewed your file in October, 2024 and concluded that your audit complied with all requirements of the international standards on auditing and that; sufficient appropriate audit evidence was in the file to support a clean audit opinion. Subsequently, an audit report with an unmodified opinion was issued on 1st November, 2024.
On 18th January 2025, you receive a letter from Dr. Fatma Shemweta, the Executive Director of the pharmacy informing you that their cashier who has just absconded has been arrested in Kigoma with TZS. 8,000,000/= cash. He was trying to escape into the Democratic Republic of Congo. Preliminary investigations carried out by the police shows that more than TZS 70,000,000 has been misappropriated in a period of three years.
The Executive Director was wondering how was it possible for your audit firm to overlook such a fraud, and how could you justify the clean audit opinion that has just been issued.
Required
With reference to the above case explain the following
(a)
The objective of an audit of financial statements
(4 Marks)
(b)
The roles and responsibilities of management on the financial statements
(4Marks)
(c)
The roles and responsibilities of the auditor on the financial statements
(4 Marks)
(d)
The purpose of the audit engagement letter
(10 Marks)
(e)
The inherent limitations of an audit
(4 Marks)
(f)
The difference between Audi risk and audit failure
(4 Marks)
(g)
Compare and contrast Porter’s and ACCA models of Audit Expectation Gap
(20 Marks)
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