Reference no: EM132879398

You CPA, work for a large public accounting firm, Jason Siegal LLP (JS), with many offices across the country. As part of your new job as a senior manager in the national office, you have been assigned to do a quality control review of the Highland Organic Foods (HOF) audit recently conducted by your Halifax office.

HOF is a wholesaler of organic food products. Your firm has been auditing HOF for the past six years ago. Your firm issued an unqualified audit opinion on the December 31, 2020 financial statements.

The following are your notes from the review of HOF's December 31, 2020 year end audit file:

• The audit team was led by Leonard Fink, who obtained his CPA, CA designation in 2017 while working at a small firm. Leonard left the accounting firm in January 2019 and joined HOF as the controller. After about a year Leonard realized that he really missed public accounting and in May 2020 quit HOF and joined JS. The HOF audit partner, Jim Hook, personally selected Leonard to lead the HOF audit. Jim thought that Leonard's extensive understanding of the organic food business and his extensive knowledge of HOF's internal controls would be a great value in the conduct of the audit. Leonard had the help of two assistants, Joe Spine and Marshia Devine.
• Leonard thought that on-the-job training was one of the best forms of professional development. He decided to let Joe and Marshia perform all of the audit field work and resolve all audit issues. He would not provide any direction to them until the audit was completed, at which time he planned on reviewing the file and providing his feedback. He was confident that they were ready to take this step in their professional development as they were considered very bright and had both done well in their auditing courses at university.
• The current year's audit working paper files were well organized. However, in November 2020, JS's main server crashed and the previous years' soft copy working papers and the soft copy permanent file were lost. JS's IT department were still working on the recovery of the files at the time of the audit. The files were never recovered. After much searching, Marshia found the hard copy HOF 2020 audit file. The hard copy file that she retrieved only included specific documents that were required to be kept in hard copy form (ie. signed engagement letter, signed accounts receivable confirmations).
• Since the prior years audit files could not be located, Marshia asked Susan Bam, HOF's assistant controller, for information on the prior year's audits. Susan indicated that the HOF audit has never had any significant problems. Susan explained that as a result of internal control weaknesses, JS did not rely on controls. She also, indicated that in last year the audit assistant told her materiality was $40,000. Marshia concluded that since there had not been any changes to HOFs operations in the current year it was appropriate to use the same materiality level and audit approach from previous years. Marshia decided not to perform any procedures on internal controls since they were weak and she had no intention of relying on them.
• During the testing of inventory several items in the sample were overstated due to errors in pricing and obsolescence, but the combination of all errors in the sample was considered immaterial. Accordingly no extra testing was completed in the area of inventory. They also found more errors than in previous years due to a change in the accounting system to computerize the inventory system.

Required:

Problem 1: Evaluate the quality of the HOF audit engagement by identifying any deficiencies in the application of generally accepted auditing standards (as set out in CAS 200) for the conduct of the December 31, 2020 financial statement audit. For each of the deficiencies, identify which standard that was violated and explain.