Question

Securimax Limited has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender process to win large government contracts. Its main product, the small but powerful Terrain Master, is highly specialized, and Securimax does business only with nations that have a recognized, democratically elected government. Securimax maintains a highly secure environment, given the sensitive and confidential nature of its vehicle designs and its clients.
Clarke Field has been the engagement partner on the Securimax audit for the last five years.
The board of Securimax is considering changing from an audit engagement to a review engagement and has approached Clarke to discuss the implications of this change. Clarke suggests that KFP could perform the review engagement.
Securimax’s financial year end is December 31.

Which of the following are factors that should be considered by KFP? (Multiple answers)

An audit will be less expensive than a review

An audit will provide a greater level of assurance than a review

Banks only require a review, not an audit

If Securimax is planning an initial public offering, an audit would likely be recommended

Review engagement reporting is more limited than audit engagement reporting

Reasonable assurance is only provided with an audit

Answer 1

Solution: Option-2; Option-4; Option-5; Option-6

Explanation: Although an audit would not provide an absolute assurance however it gives the highest assurance level. An audit would likely be recommended in IPO AS raise new equity capital for companies. A review engagement is concerned to ascertain whether or not the financial reports to be plausible or believable; while the audit engagement assures that financial reports are free from material misstatements and thus provides reasonable assurance