ACC568 Auditing Assignment 2022

Running head: ACC568 AUDITING
ACC568 Auditing
Name of the student
Name of the university
Student ID
Author note

1ACC568 AUDITING
Memorandum
To: William Albanese, Engagement Partner, Bletchington
From: Jenny Hewerd, Audit manager
Subject: Audit advice
Samway Baker Fitzgerald is the accounting firm that has offices at different locations including
Wagga Wagga, Orange, Port Macquarie, Albury and Tamworth in NSW, Ballarat in Victoria and
Toowoomba in Queensland. It is considering audit for one of its existing client Bletchington, an
ASX listed entity that belongs to manufacturing innovative defence industry. It is one of largest
client of SBF by the fee revenue. Purpose of writing of this memo is to highlight the expectation
gap, if any that may exist for audit of Bletchington that will also include special users of the
financial reports of Bletchington. Apart from that the memo will also highlight the threats to the
independence for the audit firm SBF with regard to Bletchington audit and the safeguards against
the potential threat, if any.
Answer (1)
Expectation gap is termed as the difference among public perception regarding the role of the
auditor and the responsibilities of audit engagements and what the legal responsibilities of the
auditor are in actual. Generally the users of the financial statements are in the view that the
auditors are accountable for detecting and preventing the frauds and they test the balances and
transactions more comprehensively as compared to actual practices. Expectation gas is
segregated as – (i) performance gap that is difference among work level of auditor that is

2ACC568 AUDITING
required as per auditing standards and what is perceived by the public that the auditor shall do
and (ii) liability gap that is misperception with regard to the legal liability of auditor.
Special users for the financial reports of Bletchington may involve –
 Government agencies that includes department for the Foreign Trade and Affairs that is
interested in purchase by the foreign individuals and foreign governments for the goods
manufactured by Bletchington.
 Local government of Orange and state government of NSW who may be interested in
financial viability of business and its effect on economic activities as well as local
employment.
 Competitors of Bletchington and government that is interested in the sensitive
information regarding manufacture of defence related products and identity of purchase
 Main product of Bletchington is of highly specialized nature which is a light armoured
vehicle and is known as Bush-Basher and the entity maintains high security as the
clients and designs of the product is sensitive. Hence, the supplier of this product will be
interested in company’s financial viability and likelihood of timely payment for the
purchased goods on basis of credit. These types of equipments can be made to the
specialised order with the limited numbers of alternative customers. Further, the
supplies will have large amounts of investments for supporting manufacture of these
types of specialised components.
 Usual relationship will exist with the employees, shareholders and lenders.
 Other potential customers of the company