ACCA · Question 16 · Planning and Risk Assessment

SECTION B - CONSTRUCTED RESPONSE

QuantumGrid Utilities is a newly privatized renewable energy grid operator. You are the audit manager for the year ended 31 October 20X6.

During planning, you note the following:

1. The company has invested heavily in complex new solar and wind infrastructure. These assets have varying useful lives and complex decommissioning provisions.
2. QuantumGrid received a $50m government grant to subsidize the construction of a new rural power network. The grant requires the network to be operational for 10 years; otherwise, a portion must be repaid.
3. On 1 August 20X6, the company migrated to a new, cloud-based customer billing system. Data was transferred from the old legacy system over a weekend.
4. Management bonuses are tied to achieving a 15% increase in operating profit this year.
5. The company uses complex derivative financial instruments to hedge against fluctuations in energy prices.

Requirements:
(a) Describe EIGHT audit risks and explain the auditor's response to each risk in planning the audit of QuantumGrid Utilities. (16 marks)
(b) Recommend substantive procedures the auditor should perform to verify the valuation of the new renewable energy infrastructure (Property, Plant and Equipment). (8 marks)
(c) Recommend substantive procedures to verify the government grants received. (6 marks)