Reference no: EM132514905 , Length: word count:4300

Part A
All questions are compulsory.

Question 1 Discuss what the procedures outlined in ISQC 1 Acceptance and Continuance of Client Relationships should ensure in respect of audit and assurance engagements.

Question 2. Define what is meant by objectivity in the IFAC Code of Ethics 2018 and explain how independence in appearance is established.

Question 3. Explain why internal controls can never be considered to be fool-proof by highlightingfour key limitations.

Question 4. Explore the idea ofa material misstatement in the context of audit and explain what may influence the auditors' judgement regarding whether a misstatement is considered to be material.

Question 5. Explain what is meant by sufficient appropriate audit evidence.

Part B

SuperdryPlc

Planning for the statutory audit for the year ended 30thApril 2021

You are the audit manager in charge of planning the 2021 audit of Superdry Plc. At the time of writing the 2020 financial statements have not been published and the information relates to that which is currently available in the Permanent Audit File for Superdry Plc. It is anticipated that the financial statements for 2020 will have been finalised in June or July 2020 and additional information will be available to support your research.

Attached are extracts from the audited financial statements for the year ended 24thApril 2019

Question 6. As the audit manager for the 2021 audit of Superdry Plc draft the planning notes which explore your assessment of the level of strategic risk inherent in this next audit, highlighting its impact on your audit.

Choose TWO questions from the following THREE

Question 7. Channels to market - E-commerce

Superdry continues to be a brand with huge digital potential and E-commerce is likely to be the fastest growing division of our business over the next five years: its high returns and capital light nature will enhance overall returns for shareholders. Having rebalanced our capital investment towards digital channels, we have a dynamic rolling programme of enhancements, each of which improves the customer experience. By adding a far greater degree of social media to the mix, we can expand the range and personalise what we put in front of customers. We are redesigning the Superdry website, making the navigation-to-basket easier and quicker and enhance and improve overall appearance and the digital consumer experience in order to increase conversion rates.

Extracted from Superdry Plc audited financial statements for the year ended 24th April 2019 - CEO Strategic Review

Required.
a) Explain why cybersecurity is a critical control issue for Superdry Plc.
b) Discuss the type of controls that should be in place to ensure that the e-commerce channel is secure for customers.

Question 8.

Extracted from Note One Principal Accounting Policies
o) Inventories
Inventories are valued at the lower of cost or net realisable value. Cost comprises costs associated with the purchase and bringing of inventories to the distribution centres and is based on the weighted average principle. Provisions are made for obsolescence, mark-downs and shrinkage.
Extracted from Superdry Plc audited financial statements for the year ended 24th April 2019

Required.
Draft the audit guidance notes for your audit team to support the attendance at the interim stock count in the largest Superdry Plcwarehouse which explores:
(i) the risk within this aspect of the audit; and
(ii) twokey aspects of control you would expect to see evidenced in a high quality stock count and the tests you would perform to ensure these could be relied upon.
(iii) Discuss the importance of sampling to your work at the stock count, explaining the audit risks that may arise and the factors you would consider in your selection of the sample.

Question 9.
Going concern
After considering the forecasts, sensitivities and mitigating actions available to management, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, and operate within its borrowing facilities and covenants for a period of at least 12 months from the date of signing the financial statements. Accordingly, the financial statements continue to be prepared on the going concern basis.
Viability
As explained above, in order to comply with Part 2.2 of the Corporate Governance Code, the Directors have assessed the prospects of the Group over a longer period than the 12 months required by the ‘going concern' provision. The Directors have assessed the viability of the Group over the four-year period through to FY23, which coincides with the Group's strategic review period and is consistent with the medium-term financial plan. Furthermore, beyond this period, performance is impacted by both UK and International economic conditions which become increasingly difficult to predict.
This assessment has considered the potential impact of the principal risks on the business in particular future performance and liquidity over the period. In making this statement, the Directors have considered the resilience of the Group under varying market conditions together with the effectiveness of any mitigating actions.
As already described in the statement on going concern, as part of this assessment the Directors have considered a severe but plausible trading scenario and the impact of a ‘hard Brexit', and have taken account of the availability of the Group's RCF.
While recognising the challenging retail environment will increase the risks and costs around the future refinancing of this facility, based on current market conditions the Directors believe that Superdry has the appropriate plans and mitigations in place to maximise the prospects of a successful renewal in advance of the January 2022 expiry.
The stress testing indicated that, after taking account of the mitigating actions, the Group is able to operate within its funding facilities and covenants for the four-year assessment period. Based on this assessment, the Directors have a reasonable expectation that the Group will have sufficient resources to continue in operation and meet its liabilities as they fall due over the period to April 2023. However, a sustained downturn as a result of the new strategy not turning the business around, and a failure to renew the RCF, would threaten the viability of the business over the four-year assessment period.
Extracted from Superdry Plc audited financial statements for the year ended 24th April 2019

Required
As there have been a number of failures in the retail sector over the past few years, draft the audit guidance notes for your audit team to support your audit approach for going concern.
(i) Discuss the approach taken to ensuring that this going concern assumption is appropriate.
(ii) Discuss the role of the management representation letter in supporting this evidence and explain any issues that may arise.

Part C

Answer ONE question ONLY

Question 10. The structure of Superdry Plc is complex and the Board are concerned that differing parts of the group are achieving significantly different margins on their broadly similar products and there are significant differences in the level of inventory write offs.

In July 2020 the Audit Committee commissioned the Internal Audit department to review the performance of a numberwarehouse facilities located in the UK and Europe. The group wide ERP system was enhanced during 2019 in light of the problems in previous years and the consequence of the move to a more e-commerce focus to the business has rationalised warehousing. This resulted in a reduction in the workforce by 15% and the removal of two layers of middle management staff. Working conditions have also been reviewed which has reduced overtime availability and prevents staff from smoking on the premises at all. The morale in the sector is consequently low.

The internal audit department are intending to use a new data interrogation and analysis system (which uses data analytics) to support their work.

Required.
Critically explore the contribution that data analytics could make to this internal audit assignment.

Question 11.

Extracted from the Brydon Review final report
"The purpose of an audit is to help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report, including the financial statements."

I have proposed a set of principles within the main body of the Report - The Principles of Corporate Auditing. These seek to integrate and give more prominence to auditor behaviours set out in existing standards and codes, while adding additional principles around openness, independence, challenge and the public interest. Implemented and applied effectively, these principles should provide an incentive to deliver more informative audits and I would hope that the courts will consider adherence to them as part of any defence against future legal action which may claim that an auditor's opinion has harmed the audited company.

Required
Critically appraise the role of an ethical auditor in providing confidence in a company and discuss whether the move to a new profession - the Corporate Auditor - may enhance this.

Attachment:- Auditing and Assurance.rar