2013 Auditing coursework 2013 Wentworth Brewster limited is a company specialising in the manufacturer of sports equipment which it sells to specialist retailers and to private member gym clubs. It owns freehold premises that are larger than needed for its own requirements and so sub-lets surplus office accommodation to three other businesses. All its sales are on credit terms and all customers are credit-checked and authorised by Wentworth’s credit controller prior to an account being set up. The company keeps detailed records of stock quantities. You have obtained a copy of a draft trial balance for the year ending 31 March 2011 that will be the basis from which the published accounts will be prepared. The following figures have been extracted from it: £’000
Fixed Assets 3,800
Net Profit before tax 820 It is now the May 1st and the final audit is substantially complete although if necessary further work can be undertaken up to the final deadline in 10 days time. You are the audit manager responsible for the audit and you are reviewing audit work to date. The audit senior in charge of the detailed audit procedures has brought to your attention the matters below asking your views on how material they may be and what further work if any needs to be done. Assume that earlier in the year an interim audit was completed and that the conclusion was that the company’s accounting systems were satisfactory and that internal controls were working effectively. The audit needs to be finalised by the May 10th. Debtors
Confirmation requests were sent to a sample of 30 debtors requesting confirmation of the year end balance directly to the auditor. After sending second requests to non repliers and getting Wentworth’s Sales Ledger manager to telephone those who still hadn’t replied there were five debtors who had still not replied. One of these had a zero balance at the year end and three had balances between £5,000 and £20,000. No follow up work has been done on these accounts yet. The fifth account, Multi-gym ltd was a major customer with a year end balance of £145,000. The only follow up work done so far is a discussion the audit senior had with the credit controller yesterday about this account in which he was told Multi-gym was disputing a series of invoices amounting to £95,000 relating to a model of rowing machine which they had specially commissioned from Wentworth saying the machines kept jamming and couldn’t be used. Claim for damages
Last month one of Wentworth’s retail customers was successfully sued by a member of the public who had bought a home exercise bike from them. The basis of the claim was that the assembly instructions were vague such that it was possible to misinterpret them and attach the pedals in such a way that they came off above a certain speed causing a person to fall off and injure themselves. The retail customer in turn successfully sued you to recover the damages of £25,000 awarded to the claimant. All products were subsequently withdrawn from sale until corrected instructions could replace the faulty instructions. All your retail customers were asked to send a product recall letter to customers known to have purchased this product, however no details were retained for an unknown number of customers who paid cash. In the last few weeks Wentworth have become aware of three similar claims against retail customers that have been initiated by members of the public who have suffered similar injuries. The audit senior has so far assembled these facts and confirmed that the first £25,000 has been correctly reflected in the draft accounts and that no other provision or contingency has been made. Stock
During the audit of stock it was discovered that of the £1.6 million stock, £0.5 million was made up of stock items that were included in stock at the previous year end. The audit senior confirmed that during the observation of stock count these items appeared to be in good condition and continue to be recorded at full cost. Rent
In addition to the matters above brought to your attention by the audit senior you ask what work has been done to confirm rental income. The audit senior replies that because it is small compared to sales income no work has been done specifically on rent although he did point out that at the interim audit detailed work was performed on controls over receipts and payments and found them to be very effective. Required
You are required to act as the audit manager reviewing the work to date. You need to assess the extent of any audit problems or unresolved matters and identify what further work if any is needed (bearing in mind the time available) and possible implications for your audit report. 1. Address each of the four matters above identifying to what extent each might be an audit problem.
2. Suggest what further audit work if any you would recommend to resolve the problem or what necessary further information you would want to obtain.
In each case you should be specific about the steps to be taken e.g. what further tests should be performed (if any),
3. What actions you would recommend following any further work done or information obtained
-altering the accounts;
-qualifying the audit report; if so be specific on the type of qualification
-obtaining management assurances in the letter of representation; You may make assumptions as necessary or suggest alternative actions depending on the outcome of further work or management reaction. There is no definitive answer. Guidance and criteria Write as a report by the audit manager to the audit partner responsible for the audit with the dual purposes of a) summarising the main problems and unresolved points indicating the potential impact on the financial statements and the materiality of each matter for audit purposes; b) setting out the further steps that could be taken in the time available as indicated in 2 above. There is no uniquely correct answer and the possible actions suggested above are not exhaustive. Your report should consist of a brief introduction setting out the size and nature of the company, its overall financial position, a list of the audit problem areas (no need to go into detail at this stage) and the timetable for completion.
This should be followed by 4 separate sections clearly identified: Debtors
Rent Finally you should conclude on the possible implications for your audit report depending on the outcome of the further steps you may take and any assumptions you have made. The assignment represents 40% of the total module mark.
Marks will be allocated as:
Report style, introduction and conclusion 20%
Damages claims 20%
Total 100% To obtain a good mark you need to:
Communicate clearly (structure and clarity of expression)
Be able to identify relevant information (and avoid devoting too much time to matters which are not of great significance)
Be able to demonstrate knowledge of audit procedures by commenting on what has been done and recommending further work.
Demonstrate an understanding of application of procedures by showing an awareness of what can be realistically achieved in the available time
Demonstrate an ability to evaluate data by interpreting its inter-relationships with other information to identify significance. As a guide to length answers of approximately 1500 words are expected but good answers can be written in less. All reports must be word processed and should in no circumstances exceed 2000 words. Hand in at TC375 date to be advised Your report should be no longer than 2000 words in total (high marks can be obtained by shorter reports)
When referring to material from books and journals, or when quoting directly, clear references must be made. Reports must be word processed Completed assignments must be handed in at TC 375 date to be agreed. This assignment contributes 40% of the total module mark.
NB An electronic copy must additionally be submitted through Blackboard for plagiarism checking. Paper copies will not be marked if not also submitted electronically by the due date. Be warned that the software checks assignments against other assignments as well as articles and internet sources so your assignment must not be too similar to other students’ assignments as well as not being too closely extracted from articles and on-line sources. Important tip: You can submit drafts through Blackboard from 2 weeks before the due date and view the “originality report” which will indicate the similarity your assignment has with other sources.
(This report may take an hour or two to be generated and sometimes longer so you should plan to return at a later time or the next day and not expect instant feedback)
If the report indicates your draft is not sufficiently original you can redraft it and resubmit it and view the revised report. You can if necessary repeat this process as many times as you like up until the due date. You cannot submit through Blackboard after the due date. You must in any case submit your paper copy at TC375 no later than the due date. The paper copy you submit at TC375 must be exactly the same version as the final copy you submit through Blackboard. Warning: If you submit through Blackboard at the last minute e.g. on the due date, and the originality report indicates a high degree of similarity with other sources you will have no opportunity to revise it and must submit a paper version at TC375 as it is. Obtaining a last minute originality report which indicates your assignment may be too similar to other sources will not be accepted as a reason for an extension or late submission. Where an electronic draft has been submitted on or shortly before the due date and no final paper version has been submitted on time the last submitted electronic version may be taken as your final submission and where appropriate put through the University’s plagiarism procedures. If, very exceptionally, you have agreed an extension in advance for valid medical or other reasons and are submitting after the due date you must submit through TC375 with an electronic copy attached .
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