Reference no: EM132926316 , Length: word count:1500

AC5061 Audit and Internal Control - London Metropolitan University

TASK ONE You are an audit assistant of the accounting firm, High & Low, and you are part of the engagement team to audit a new client, Carroll Ltd (Carroll) for the year ending 31 January 2020. The engagement partner had a pre-audit meeting with Carroll's finance director, at which you were in attendance, to obtain more information about Carroll and its operations. You took down the following notes at the meeting:

Nature of the business and governance
Carroll is in the construction sector and operates on low margins on complex, high-value, multi-year contracts involving building construction and other major structures. The major contracts are done predominantly, but not exclusively, for the government. Carroll's operations are organised into five divisions across the south east of England with a head office at Milton Keynes.

As is the usual practice in the construction industry, Carroll has received significant sums of money up front to get its long-term major capital contracts moving.

Activity in the construction industry has slowed down slightly in recent months due to economic uncertainty arising from the Brexit process. Carroll has been bidding lower prices for some contracts in order to keep winning work and keep its sub-contractors and employees occupied.

Carroll is a family owned company. The company is headed by a seven-member board, chaired by Jackie Carroll and includes three other Carroll family members (who are all executive directors), two former university mates of Jackie Carroll and a former chief executive officer of the company.

Staffing
The staff turnover of the construction employees is very high with most of them being casuals or temps. Construction employees are recruited directly at the work site and details of hours worked are sent by site managers every fortnight to the payroll department at the head office.

IT Project and valuation of long-term contracts
During the year ended 31 January 2020, Carroll spent a total of £1million on integrating the financial accounting, management accounting and human resource (including payroll) system.

As a result of the specialised nature of its contracts, Carroll uses John Bright, a management expert, to value its long-term contracts including work-in-progress at the end of its accounting period.

Required

Discuss the audit risks associated with the audit engagement. You should refer to the audit risk model. (1000 words)

TASK TWO
Serious concerns have been raised by various stakeholders of companies about the quality and usefulness of the external audit.

Required: Discuss these concerns and what could be done to improve the confidence in the external audit (500 Words)