The following issues emanated from the pre-audit meeting of FIFO Limited:

1. The operating environment has been affected by the COVID-19 pandemic. Management has responded with policy initiatives to stem negative impacts, resulting in financial contractions in Q2 2020 that affected half-year results and necessitated budget revisions. Effects included GDP shrinkage, lower investment yields, foreign exchange rate growth, and inflation.
2. Increased accounts receivable due to customers’ repayment issues.
3. Focus on liquidity to support daily operations.
4. Volatile profit before tax, requiring alternative materiality benchmarks such as gross profit or total revenue.
5. Firm’s software calculates materiality based on selected benchmarks, with auditor judgment essential in assessing materiality.
6. Engagement team declaration of independence and confidentiality of client information.
7. Completion of preliminary engagement activities on schedule for timely review.
8. Use of preliminary analytical review as a risk assessment tool to identify unusual transactions, events, and trends that may indicate audit-relevant matters, including fraud risks. This should be handled with care.

Required:

a. State the preliminary activities to be undertaken before the commencement of the audit. (6 Marks)

b. State the characteristics of confidentiality in auditing. (7 Marks)

c. Explain briefly the purposes of analytical review. (4 Marks)

d. State at what stage of the audit an analytical review should be performed. (3 Marks)