ACC305: How does an independent audit of Garpu’s financial statements play an important role in the context of information risks: Assurance and Attestation Case Study, SUSS

Part A

Garpu Pte Ltd (Garpu) was a start-up founded three years ago by two young undergraduates who turned their passion for sustainable culinary arts into a business. Based in Singapore, Garpu specializes in supplying edible cutleries to local food and beverage outlets with the hope of eliminating single-use plastics and reducing environmental issues associated with single-use plastics shortly.

Garpu produces the cutleries via an exclusive manufacturing arrangement with a supplier in Indonesia, where most of the key ingredients are readily available. In the beginning, the founders faced multitudes of challenges in educating consumers to accept their products. After all, the idea of consuming one’s cutlery is a fairly new and strange concept.

Following a recent documentary featuring Garpu aired on Channel News Asia (CNA) on 10 March 2023, Garpu has been inundated with inquiries for large orders from hotels, airlines, and various other businesses, locally and overseas. The company also caught the attention of a global venture capital fund (VC), which is interested in taking a minority stake in the company.

The founders have approached you to assist and guide them in their discussions and negotiations with the VC. The three of you shared the same curriculum activity while studying in the university, and therefore have known one another since then. Being two batches ahead of the founders, you graduated two years ahead of them.

You are now an audit manager in a local mid-tier firm, Aries LLP (Aries). Although this is Aries’ second annual statutory audit of Garpu for its latest financial year ended 31 March 2023 (FY2023), it is the first time you have been assigned to be part of the audit team to conduct Garpu’s statutory audit.

Part B

As the audit progresses, the audit team lists their key findings as follows:

There were only two credit notes authorized and issued within 30 days from the financial year-end. The first credit note was issued on 7 April 2023 (CN1) to cancel a double billing of $2,000 dated 7 March 2023. The other credit note dated 14 April 2023 amounting to $300 (CN2) was issued to adjust for the goods rejected and returned by a client due to the wrong quantity delivered on 10 April 2023.
A January shipment from the Indonesian supplier agreed on a “FOB destination” basis, was delayed by more than two months following an unexpected strike by port workers demanding better wages and working conditions. The shipment was expected to reach Garpu by 15 January 2023. However, Garpu only received the goods, in good working condition, on 2 April 2023.

Question 1

How does an independent audit of Garpu’s financial statements play an important role in the context of information risks and asymmetry between the users of the financial statements and the management of Garpu?
The importance of harmonization of local and international standards of auditing for the users of the financial statements

Question 2

Indicate five (5) risk considerations comprising three (3) business risks relating to Garpu and two (2) risks relating to the audit engagement.
For each risk you have identified, discuss why it is relevant to your annual audit engagement.
Illustrate one (1) audit procedure or mitigating action Aries should take to address each risk.

Question 3

Part A illustrates the ethical implications of the two founders’ request to assist and guide them in their discussions and negotiations with the global venture capital fund. Discuss appropriate safeguards and actions that you should take. You should refer to the Ethics Pronouncement EP100 Code of Professional Conduct and Ethics effective 15 December 2022.

Question 4

Explain the implication(s) that may arise from the finding.
Demonstrate two (2) management assertions at risk of material misstatements and corresponding affected accounts in the financial statement.

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