How the threat could be addressed

Reference no: EM133290920

Case: Your audit client is Quality Constructions (QC), a company that builds small office buildings (3-5 floors) in capital cities around Australia and which is wholly owned by its founder, Kerry Bricker. QC currently has 10 projects at various stages of completion. QC has been profitable for many years, partly because of its policies of offering fixed-price contracts and a 10% refund if projects aren't finished on time. Due to recent flooding in QLD and NSW, QC has been affected by the difficulty of obtaining building supplies and the higher cost of supplies that are available. Consequently, 7 out of the current 10 projects are behind schedule and it is expected that only 6 of these projects will be profitable. In order to protect the viability of the business, QC has decided to pursue larger projects and has just secured a contract to construct a 15-story tower, for which they received a 30% deposit payment just before year-end. QC's finance director (Jessie Smith) tells you that 'this new deal means there's plenty of cash in the bank, even if we lose a few dollars on the small projects'.

Additional information

As part of your audit planning meeting with Quality Constructions you discover that the Melbourne division of your firm has engaged Quality Constructions to build its new office building (on ordinary commercial terms). The new building will be a significant asset for the Melbourne division of your firm.

Required

In accordance with APES 110 (2018), state:

a) whether Quality Constructions is a Public Interest Entity;

b) the most important Threat (briefly explain your answer);

c) whether the threat is at an acceptable level (briefly explain your answer);

d) how the threat could be addressed.

Reference no: EM133290920

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