Problem:
You are the Senior Audit Partner of Cassidy and Sundance, Chartered Accountants. Your firm is one of the Big 4 accounting and audit firms in Australia and has significant experience in the audit of ASX listed companies and all industries.
It is the 31st May 2006 and you have been approached by the Chief Executive Officer (CEO) of Chemeq Limited about conducting the audit of the company for the 2005/06 financial year, and subsequent financial years. Some issues have emerged with the current auditors which have meant that new auditors need to be located. Ms Etta Place, the Managing Partner of Cassidy and Sundance is keen to locate more audit clients in Western Australia and sees this a good opportunity to meet that objective. However, Ms Place only wants to take on audit clients if the business risks of those clients is acceptable to the firm.
You are asked by Ms Place to prepare a Memorandum to her outlining the business and inherent risks associated with the audit of Chemeq Limited. Given the Commercial In Confidence of this request you are only able to locate information from publicly available information on Chemeq Limited.
REQUIRED:
Prepare a Memorandum for Ms Place on the business risks of Chemeq Limited. This should also include an overall assessment of business risk and inherent risk factors.
HINTS
1. Annual Report from Chemeq’s website will provide help as starting point to solve the question. Analyse it so that you get a reasonable understanding of the company and then seek other relevant information from various websites (eg the Australian Stock Exchange).
2. Try to locate 20 different risk factors. Each risk factor should identify the following:
• A clear description of the risk
• The basis of the risk (ie what you found that identified the risk)
• Why the risk is a risk (ie the impact on the audit)
• The level of risk (ie, low, medium or high)
3. Finally, ensure that you do provide a concluding section which provides an overall assessment of the business and inherent risks.
4. Ensure that you do reference all sources where you get information from. It is important that you do recognise and acknowledge those sources. It will help me to look back at source so that I can get clear understanding of the risk factors involved.