（c) In April 2006, Keffler was banned by the local government from emptying waste water into a river because the
water did not meet minimum standards of cleanliness. Keffler has made a provision of $0·9 million for the
technological upgrading of its water purifying process and included $45,000 for the penalties imposed in ‘other
provisions’. （5 marks)
Required:
For each of the above issues:
（i) comment on the matters that you should consider; and
（ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended
31 March 2006.
NOTE: The mark allocation is shown against each of the three issues.
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（c) Explain the extent to which you should plan to place reliance on analytical procedures as audit evidence.
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（b) State, with reasons, the principal additional information that should be made available for your review of
Robson Construction Co. （8 marks) -
（b) Explain the matters you should consider before accepting an engagement to conduct a due diligence review
of MCM. （10 marks) -
4 （a) The purpose of ISA 510 ‘Initial Engagements – Opening Balances’ is to establish standards and provide guidance
regarding opening balances when the financial statements are audited for the first time or when the financial
statements for the prior period were audited by another auditor.
Required:
Explain the auditor’s reporting responsibilities that are specific to initial engagements. （5 marks) -
2 Plaza, a limited liability company, is a major food retailer. Further to the success of its national supermarkets in the late 1990s it has extended its operations throughout Europe and most recently to Asia, where it is expanding rapidly. You are a manager in Andando, a firm of Chartered Certified Accountants. You have been approached by Duncan Seymour, the chief finance officer of Plaza, to advise on a bid that Plaza is proposing to make for the purchase of MCM. You have ascertained the following from a briefing note received from Duncan. MCM provides training in management, communications and marketing to a wide range of corporate clients, including multi-nationals. The ‘MCM’ name is well regarded in its areas of expertise. MCM is currently wholly-owned by Frontiers, an international publisher of textbooks, whose shares are quoted on a recognised stock exchange. MCM has a National and an International business. The National business comprises 11 training centres. The audited financial statements show revenue of $12·5 million and profit before taxation of $1·3 million for this geographic segment for the year to 31 December
Most of the National business’s premises are owned or held on long leases. Trainers in the National businessare mainly full-time employees. The International business has five training centres in Europe and Asia. For these segments, revenue amounted to $6·3 million and profit before tax $2·4 million for the year to 31 December 2004. Most of the International business’s premises are held on operating leases. International trade receivables at 31 December 2004 amounted to $3·7 million. Although the International centres employ some full-time trainers, the majority of trainers provide their services as freelance consultants. Required: （a) Define ‘due diligence’ and describe the nature and purpose of a due diligence review. （4 marks)