M/s GDP Associates, a renowned firm of Chartered Accountants consisting of 15 partners was appointed as statutory auditors for the Financial Year…

M/s GDP Associates, a renowned firm of Chartered Accountants consisting of 15 partners was appointed as statutory auditors for the Financial Year 2024-25 of SYNC Technology Ltd., a technology focused engineering company engaged in turnkey electronics manufacturing services, specializing in precision manufacturing for diverse end-use industries including the automotive, healthcare, IT, industrial appliances, energy management, water purification, power supply and consumer products industries. The company's portfolio includes memory, SSDs, motherboards, power adapters, and systems integration. In conducting an initial audit engagement, the objective of the M/s GDP Associates is to obtain sufficient appropriate audit evidence about whether Opening balances contain misstatements that materially affect the current period's financial statements; and appropriate accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements, or changes thereto are properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework. The company's prior year financial statements were audited by M/s JK Associates, but the predecessor auditor's report was modified due to the non-disclosure of certain liabilities. The opening balances include significant provisions and carry forward adjustments. M/s GDP Associates decides to use sampling to test compliance with internal controls over revenue recognition. As part of the audit of SYNC Technology Ltd., M/s GDP Associates are performing sampling for tests of controls and substantive procedures. At the end of the sampling process, the auditor needed to conclude on whether the sampling results provided a reasonable basis for conclusions about the population tested. During testing, the following scenarios arose: (1) A selected item could not be tested because supporting documentation was unavailable. The auditor is unable to apply the designed audit procedures since documentation relating to sales is lost, like the sales order record, sales invoice, document for dispatch. (2) A deviation was identified in the sample that could potentially indicate a misstatement in the population. (3) The auditor found an item that seemed anomalous but required further procedures to confirm it was not representative of the population. As part of audit, to confirm the accounts receivable balances with customers, M/s GDP Associates sends confirmation requests to SYNC Technology Ltd.'s top 50 customers, whose account balances represent 80% of the company's total receivables. The auditor sends confirmation requests to confirm balances of cash held in bank accounts and outstanding loans with the bank. The auditor also sends confirmation requests to 200 small suppliers with low-value account balances. The following events occur during the confirmation process: (1) Out of the 50 positive confirmation requests, 10 responses indicate agreement with the balances, 5 responses indicate discrepancies, and 35 do not respond. (2) One response to a positive confirmation appears unreliable due to discrepancies in the customer's letterhead and inconsistent information. (3) The 100 negative confirmation requests receive no responses. (4) In the case of non-response, the audit firm examined subsequent cash disbursements, email correspondences, and other records like goods received notes. Further M/s GDP Associates engaged an external IT expert to evaluate the entity's cyber security framework, a significant area of risk identified during risk assessment. M/s GDP Associates and the expert held discussions to finalize the terms of the engagement, which included: (1) The expert's role in assessing the robustness of SYNC Technology Ltd.'s cyber security systems. (2) The communication protocol, specifying that the expert would provide interim oral reports during the engagement and a formal written report upon conclusion. (3) The need for confidentiality agreements, as the entity requested additional restrictions on the disclosure of sensitive cyber security information. (4) The identification of specific audit team members responsible for liaising with the expert and facilitating communication between the expert and the entity. During the audit, the following issues arose: The expert delayed submitting the formal report, citing unclear communication about the expected scope of work.The entity expressed concerns about the confidentiality provisions not being adequately addressed.The expert had limited interaction with the auditor, leading to misalignment on the interim findings.