Alarmforce Case
During the process of preparing audit plan for AlarmForce(AF) Industries Inc, we identified several issues that need to be focusing on.
Auditing concerns
Issue one: Serious disagreements between AF management/board and the SF Partnership LLP (Predecessor)
There are some serious disagreements between SF partnership and the AF management. The issue may increase the audit risk of our engagement as a first time audit. This is an issue that we should pay more attention to.
Solutions:
Communicate with the predecessor over the disagreement during the auditing engagement
Communicate with the management of AF over the disagreement of the auditing activity
Obtain sufficient appropriate audit evidence regarding the opening balances by reviewing the predecessor auditors working papers
Examine the professional competency and independence of the predecessor auditor
Determine the materiality of the disagreement, address the issues of conflict
Assess the evidence of possible fraud and unethical issues related with the disagreement
Determine the engagement of the auditing activity on the previous evidence obtained, withdraw from the engagement if necessary
Accounting concerns
Issue one: The possible fraud of overstatement of rental equipment
AF transfers its inventory to rental equipment after installation. Due to the increasing awareness of fraud happened in the industry, we should pay more attention to the potential fraud risk of AF.
Solutions:
Involve alarming security equipment expert in the auditing process, evaluate the completeness, valuation, existence of the rental equipment
Ensure the fairly presentation of the rental equipment on the financial statement
Inquiry the management, obtain the internal control procedure concerning rental equipment on a operational