After a bitter disagreement with their External Auditor, Kelptos
(a Charity providing work for the Victorian government) fired
their External Auditor and is looking for a new External Audit
firm.
The CEO of Kleptos (W.E. Chatham) has asked Dewy Cheatem,
and Howe to bid on doing the Kleptos Audit. However, as a
precondition of taking the contract, you must agree to not
complain about the funding receipts from the Victorian
government being journalized on receipt as revenue (even
though the contracted work has not yet been done).
Your early assessment of Kelptos indicates that it has a high-risk
business environment (0.83), poor to none existent internal
controls (0.95), and the detection of problems during any
reasonable level of audit is very poor (0.75).
Mr Chad Cheatem has asked for a memo on whether or not to
accept the Kleptos engagement. In that Memo make and support
a decision on the acceptance/(rejection) of the job—as part of
the support:
a) List and discuss what you need to consider before accepting
the Kleptos Audit engagement.
b) Show the audit risk model and use it to estimate and evaluate
the audit risk of the Kleptos Audit engagement.
c) If your firm’s Audit Risk tolerance is 0.15, would you accept
the audit? Explain.
d) Discuss what changes Kelptos should implement to make
their Charity more auditable.
Each group is expected to write a memo of ½ to 1½ pages with the following sections:
Headers (5 marks) with: To: XXXXXX
From: YYYYYYYYY
Date: 27/07/2014
Re: (Ideally 6 to 12 words)
Please Note: the “re:” line is a few descriptors to help with filing.
Context Line (15 marks): One to two sentences that should provide a clear and concise
statement of the issues and consequences (i.e. why the reader should read the memo).
Action Line (25 Marks): One to three sentences that is like a conclusion but should provide An
excellent clear concise statement of how to resolve the issues (i.e. what do you, as the
crafter/s of the Memo want the reader to do).
Rest of the Memo (25 Marks): Supports the action line. Ideally, it should provide excellent
insight plus strong, clear, and concise support for the action line and that support must be
clearly tied to the action line.