Reference no: EM132999576

Question - NewWave Energy Ltd. is a start-up company in the renewable energy sector. The founder of NewWave Energy Ltd., Harry Fliwheel, has developed cutting-edge technology to convert wave energy to electricity via a vacuum sealed gyroscope that spins at high speed due to the up and down motion of ocean waves. SDPG Partners has won the contract for the first statutory audit of NewWave Energy Ltd. on the basis of its expertise in the energy sector. However, the lead partner, Donna Shade, recognises that the success of the audit is dependent on the correct assessment of the technology being used at NewWave Energy Ltd. Donna specified in her successful tender documents that the audit will use an external expert to help with valuation of the company's assets.

Harry Fliwheel is very protective of his company's intellectual property and is resistant to Donna's first suggested expert, Gottfried Spinner. Harry believes that Gottfried Spinner is hostile towards him because they clashed when they both worked for a German company making wind turbines in the 1990s. Harry has suggested another expert, Gomez Withme, with whom he has had good working relations over the last 20 years.

Required -

a) Advise Donna Shade about the choice of an expert for the audit of NewWave Energy Ltd. What must he consider when making his choice?

b) NewWave Energy Ltd. takes over another renewable energy company during the second year of the audit. The new subsidiary is based in another state and has previously been audited by a local audit firm. How should Donna handle the new audit responsibilities brought about by the client's expansion? Explain.

c) Explain why the quality of audit evidence is determined by the choice of audit procedure and the assertion at risk of material misstatement.