7/26/2019 HI5026 Memo 03(1)

1/1

Holmes Institute HI5026 Memo 03T01, 2015

Background:

After a bitter disagreement with their External Auditor, Kelptos

a Charity providing work for the Victorian government) firedheir 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 aprecondition of taking the contract, you must agree to notcomplain about the funding receipts from the Victoriangovernment being journalized on receipt as revenue (evenhough the contracted work has not yet been done).

Your early assessment of Kelptos indicates that it has a high-riskbusiness environment (0.83), poor to none existent internal

controls (0.95), and the detection of problems during anyeasonable level of audit is very poor (0.75).

Mr Chad Cheatem has asked for a memo on whether or not toaccept the Kleptos engagement. In that Memo make and supporta decision on the acceptance/(rejection) of the jobas part ofhe 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 firms 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.

A Full Service Creative Accounting FirmLoopholes Located Books Juggled Taxes Evaded

Funds Diverted Money Laundered Shortages Hidden

Pensions Plundered Credit Denied Parking Validated

Bankruptcies our Specialty!