Advance Auditing

Case Study


Group members
Faizan Ali Khan
Abdullah Bajwa
Abdul Razaq




HARRISON LIMITED
Your firm has been approached by management of Harrison Limited to be engaged as
auditors for the current year financial statements.

The financial statements of the previous year were audited by another firm of chartered
accountants who were unable to express an opinion on the financial statements because of
serious deficiencies in the accounting records and the systems of internal control, and because
the inventory count taken to establish the year end quantities was not deemed reliable.

Management has informed you that during the year they hired a controller who implemented
changes to the systems of internal control and accounting records.

Your manager is concerned about the effect that the scope limitation on the prior year's
financial statements and the current year's changes to the systems of internal control and
accounting records will have on the audit evidence required for the current audit if the
engagement is accepted. He has asked you to be prepared to discuss this issue as well as the
firm's professional and reporting responsibilities in relation to this engagement.

Required:
Prepare your outline of the issues to be discussed at the meeting with the manager.


Solution to Harrison limited case
Issues during audit are as following
lack of serious deficiencies in the accounting records and the systems of internal control
materiality
scope limitation
Harrison limited doesnt has proper financial statements of previous year end thats why auditors
previously didnt certified the balances of the company . This indicates a high risk levels at audit ,
keeping in point that materiality also matters here . Management has informed about changes they
implemented this year in the accounting records and internal controls this indicates that internal
controls previously were weak .
Opening balances (auditor certified closing balances) are required for the audit , missing balances
create a high risk for misstatements that materially affects this periods financial position for audit
conduction. There are no previous working papers to be reviewed before audit .The decision can be
qualified on the basis of that the current years closings balance if verified after audit engagement.
Internal controls and accounting records are changed this year so it can be pointed consistency of
accounting policies is affected that would lead to auditors opinion to be qualified or adverse . There is
the possibility that internal controls this year are better than last years but there is no reliable source
available to provide the sufficient evidence on the internal controls . Weak internal controls would
require the substantive testing with detailed analytical procedures .