Question Tag: Audit Issues

Your firm, Lardi & Associates, has asked you to perform an independent review of the working papers of Adorko Plc which is a listed entity and has been an audit client of your firm for the last ten years. The audit fieldwork is almost complete and as part of your review, you have been asked to advise the audit team on the drafting of their report to those charged with governance. Adorko Plc is a discount food retailer which operates 85 stores nationwide.

Below is an extract of the financial statements for the period:

After a period of rapid expansion, 2022 has been a year in which Adorko Plc has strengthened its existing position within the market and has not acquired any additional stores or businesses. The company’s draft statement of financial position for 2022 includes a property portfolio of GH¢315 million all of which are legally owned by the entity. In the current year, the company has chosen to adopt a policy of revaluing its property portfolio for the first time and this is reflected in the draft figures for 2022. The audit work on property, plant and equipment included testing a sample of the revaluations. Lardi & Associates requested at the planning stage that independent, external valuation reports should be made available to the audit team at the start of the final audit visit. A number of these documents were not available when requested and it took three weeks for them to be received by the audit team. The audit working papers also identified that on review of the non-current asset register, there were four properties with a total carrying amount of GH¢11.1 million which had not yet been revalued and were still recorded at depreciated historic cost.

The audit supervisor’s review of Adorko Plc’s board minutes identified that the company has renovated seventeen car parking facilities at of its stores which has resulted in a significant increase in customer numbers and revenue at each of these locations. The total cost of the renovation work was GH¢13.2 million and has been included in operating expenses for the current year. The audit file includes a working paper recording discussions with management which confirms that capital expenditure authorization forms had not been completed for this expenditure.

You are aware that your firm had intended to replace the current engagement partner, Mr. Kunta, with Mr. Barima who is Lardi & Associates’s other specialist in food retail. Unfortunately, Mr. Barima was taken ill earlier in the year and will not now be available until next year’s audit engagement. As a result, 2022 is the eighth consecutive year in which Mr. Kunta has acted as engagement partner.

Required:
From the information provided above, recommend the matters which should be included in Lardi & Associates’s report to those charged with governance, and explain the reason for their inclusion. (10 marks)