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 auditor's 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

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