ExpertACCA · Question 1 · Advanced Audit and Assurance
SECTION A - STRATEGIC CASE STUDY
You are an audit manager in the firm of K&P. You are planning the audit of AuraGrid PLC, a listed multinational renewable energy and public utility company, for the year ending 31 December 202X.
Exhibit 1: Email from Audit Partner
To: Audit Manager
From: Sarah Jenkins, Audit Partner
Subject: Audit Planning for AuraGrid PLC
Hello,
I need you to prepare briefing notes for our upcoming planning meeting. AuraGrid has expanded significantly this year. They have entered a new jurisdiction, the developing nation of 'Novaria', to build offshore wind farms. They also acquired a smart-grid technology startup, SmartGridX.
Please prepare briefing notes which:
(a) Evaluate the principal business risks facing AuraGrid PLC. (10 marks)
(b) Evaluate the significant audit risks to be considered in planning the group audit. (18 marks)
(c) Discuss the group audit implications of the Novaria expansion, specifically regarding our reliance on the component auditor, a small local firm named 'NovAudit'. (12 marks)
(d) Evaluate the ethical and practice management implications of a recent offer made by AuraGrid's CFO, who has invited me (the Group Audit Partner) to sit on the advisory board of the new Novaria subsidiary to provide 'strategic regulatory advice'. (10 marks)
Note: 10 professional marks are available within the total 50 marks for the structure, clarity, and professional tone of your briefing notes, as well as the exercise of professional skepticism and commercial acumen.
Exhibit 2: Background Information on AuraGrid
AuraGrid's expansion into Novaria involves a $500m investment. The Novarian government has provided a $50m conditional grant, requiring AuraGrid to employ 70% local staff and maintain the wind farms for 10 years. If conditions are breached, the grant is repayable. AuraGrid has recognized the full $50m as income this year to boost profitability.
To hedge against the risk of low wind seasons, AuraGrid has entered into complex weather derivative contracts. These are highly bespoke financial instruments traded over-the-counter.
On 1 July 202X, AuraGrid acquired 100% of SmartGridX for $120m. The net assets at acquisition were valued at $40m, resulting in $80m of goodwill. SmartGridX's primary asset is internally generated software for grid optimization, which AuraGrid capitalized at $30m just prior to the acquisition.
Exhibit 3: Financial Extracts (Projected to 31 Dec 202X)
Revenue: $2,400m (202W: $1,900m)
Profit Before Tax: $180m (202W: $140m)
Total Assets: $3,500m (202W: $2,800m)
SECTION A - STRATEGIC CASE STUDY
You are an audit manager in the firm of K&P. You are planning the audit of AuraGrid PLC, a listed multinational renewable energy and public utility company, for the year ending 31 December 202X.
Exhibit 1: Email from Audit Partner
To: Audit Manager
From: Sarah Jenkins, Audit Partner
Subject: Audit Planning for AuraGrid PLC
Hello,
I need you to prepare briefing notes for our upcoming planning meeting. AuraGrid has expanded significantly this year. They have entered a new jurisdiction, the developing nation of 'Novaria', to build offshore wind farms. They also acquired a smart-grid technology startup, SmartGridX.
Please prepare briefing notes which:
(a) Evaluate the principal business risks facing AuraGrid PLC. (10 marks)
(b) Evaluate the significant audit risks to be considered in planning the group audit. (18 marks)
(c) Discuss the group audit implications of the Novaria expansion, specifically regarding our reliance on the component auditor, a small local firm named 'NovAudit'. (12 marks)
(d) Evaluate the ethical and practice management implications of a recent offer made by AuraGrid's CFO, who has invited me (the Group Audit Partner) to sit on the advisory board of the new Novaria subsidiary to provide 'strategic regulatory advice'. (10 marks)
Note: 10 professional marks are available within the total 50 marks for the structure, clarity, and professional tone of your briefing notes, as well as the exercise of professional skepticism and commercial acumen.
Exhibit 2: Background Information on AuraGrid
AuraGrid's expansion into Novaria involves a $500m investment. The Novarian government has provided a $50m conditional grant, requiring AuraGrid to employ 70% local staff and maintain the wind farms for 10 years. If conditions are breached, the grant is repayable. AuraGrid has recognized the full $50m as income this year to boost profitability.
To hedge against the risk of low wind seasons, AuraGrid has entered into complex weather derivative contracts. These are highly bespoke financial instruments traded over-the-counter.
On 1 July 202X, AuraGrid acquired 100% of SmartGridX for $120m. The net assets at acquisition were valued at $40m, resulting in $80m of goodwill. SmartGridX's primary asset is internally generated software for grid optimization, which AuraGrid capitalized at $30m just prior to the acquisition.
Exhibit 3: Financial Extracts (Projected to 31 Dec 202X)
Revenue: $2,400m (202W: $1,900m)
Profit Before Tax: $180m (202W: $140m)
Total Assets: $3,500m (202W: $2,800m)
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