Explain what is meant by ‘inherent risk’.
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Contractors Depot Co is an established builders’ merchant, and a new audit client of your audit firm. The next financial statements of the company due for audit, will be those for the year ending 31 July 2019 and the following information is relevant for the audit. The company operates from 24 sites around the country. All sites comprise a shop and a yard with the largest site also accommodating the company’s head office. During the year, each of the shops was subjected to a major repair and refurbishment programme. Each site sells a wide range of products, by way of customer collection or by company delivery, including timber and consumable materials, decorating and general building products. Ranges of tools and equipment are also available both for sale and for short-term hire, whilst very large stockpiles of sand and gravel are kept in each yard to meet customer demand. Contractors Depot Co owns a large volume of mobile plant and equipment to service its yard and delivery operations. These include mechanical shovels, dumper trucks, lorries and vans.Each site is open throughout the year, closing only for public holidays. Consequently 18 full-time shop, yard and delivery staff are employed at each site together with significant numbers of part-time and temporary
employees.
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Explain what is meant by ‘inherent risk’.
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- Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different for-profit and not-for-profit entities. Two years ago, Luisa Mellina, Ginnians partner in charge of operations, became concerned about the amount of audit time required by not-for-profit entities. As a result, she instituted a series of training programs focusing on the auditing of not-forprofit entities. Now, she would like to see if the training seemed to work. So, she ran a multiple regression on 22 months of data for Ginnian for three variables: the total monthly cost of audit professional time, the number of not-for-profit audits, and the hours of training in the audit of not-for-profit entities. The following printout was obtained: Required: 1. Write out the cost equation for Ginnians audit professional time. 2. If Ginnian expects to have 9 audits of not-for-profits next month and expects that audit professionals will have a total of 130 hours of not-for-profit training, what is the anticipated cost of professional time? 3. Are the hours spent auditing not-for-profit entities positively or negatively correlated with audit professional costs? Is percentage of experienced team members positively or negatively correlated with audit professional cost? 4. What does R2 mean in this equation? Overall, what is your evaluation of the cost equation that was developed for the cost of audit professionals?Contractors Depot Co is an established builders’ merchant, and a new audit client of your audit firm. The next financial statements of the company due for audit, will be those for the year ending 31 July 2019 and the following information is relevant for the audit. The company operates from 24 sites around the country. All sites comprise a shop and a yard with the largest site also accommodating the company’s head office. During the year, each of the shops was subjected to a major repair and refurbishment programme. Each site sells a wide range of products, by way of customer collection or by company delivery, including timber and consumable materials, decorating and general building products. Ranges of tools and equipment are also available both for sale and for short-term hire, whilst very large stockpiles of sand and gravel are kept in each yard to meet customer demand. Contractors Depot Co owns a large volume of mobile plant and equipment to service its yard and delivery…Contractors Depot Co is an established builders’ merchant, and a new audit client of your audit firm. The next financial statements of the company due for audit, will be those for the year ending 31 July 2019 and the following information is relevant for the audit.The company operates from 24 sites around the country. All sites comprise a shop and a yard with the largest site also accommodating the company’s head office. During the year, each of the shops was subjected to a major repair and refurbishment programme.Each site sells a wide range of products, by way of customer collection or by company delivery, including timber and consumable materials, decorating and general building products. Ranges of tools and equipment are also available both for sale and for short-term hire, whilst very large stockpiles of sand and gravel are kept in each yard to meet customer demand.Contractors Depot Co owns a large volume of mobile plant and equipment to service its yard and delivery operations.…
- You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…
- You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: 1) Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. 2) Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are an audit senior in Riskam and Co and you are commencing the planning of the auditof CariBev Co for the year ending 31 August 2020.CariBev Co is a drinks manufacturer and has been trading for over 20 years, it operates fromone central site, which includes the production facility, warehouse and administration offices.CariBev sells all of its goods to large retail stores, with 60% being to one large chain storeFoodForAll.The company has a one year contract to be the sole supplier of drinks to FoodForAll. Itsecured the contract through significantly reducing prices and offering a four-month creditperiod, the company’s normal credit period is one month. Goods in/purchasesIn recent years, CariBev has reduced the level of goods directly manufactured and insteadstarted to import drinks from South Asia. Approximately 60% is imported and 40%manufactured.Within the production facility is a large amount of old plant and equipment that is nowredundant and has minimal scrap value. Purchase…
- You are an audit senior in Riskam and Co and you are commencing the planning of the auditof CariBev Co for the year ending 31 August 2020.CariBev Co is a drinks manufacturer and has been trading for over 20 years, it operates fromone central site, which includes the production facility, warehouse and administration offices.CariBev sells all of its goods to large retail stores, with 60% being to one large chain storeFoodForAll.The company has a one year contract to be the sole supplier of drinks to FoodForAll. Itsecured the contract through significantly reducing prices and offering a four-month creditperiod, the company’s normal credit period is one month. Goods in/purchasesIn recent years, CariBev has reduced the level of goods directly manufactured and insteadstarted to import drinks from South Asia. Approximately 60% is imported and 40%manufactured.Within the production facility is a large amount of old plant and equipment that is nowredundant and has minimal scrap value. Purchase…You are the supervisor accountable for the audit of Kicap Manis Berhad, a listed agency, for the 12 months ended 31 December 2019. The major enterprise activity of Kicap Manis Berhad is the manufacture of farm machinery. The audit paintings has been completed, and you are reviewing the operating papers in order to draft a file to those charged with governance. during the audit of property, plant and gadget (PPE), the audit team located no cloth misstatement but the subsequent issues have come to your interest. It changed into found that authorization had not been won for the buy of office equipment with a fee of RM315,000. The officer in rate of the buy claimed that the management has conveyed their settlement with the buy in the management team month-to-month meeting, but the audit team has now not been provided with such mins of assembly even after numerous requests. The purchaser is the use of an internally evolved PPE gadget, PropertyCare, to hold the records of the PPE. It became…You are an audit senior of Aidit & Co and are in the process of preparing the audit programmes for the final audit of CariClean Ltd. for the year ending 31 December 2019. The company develops and manufactures specialist cleaning products and has been a client of your firm for several years. The audit manager has attended a planning meeting with the finance director and has provided you with the following notes of the meeting: Aidit & Co calculates a large number of ratios and trends for comparison with industry averages and prior year calculations. For most engagements, the client’s business was significantly different from the industry data and the client would automatically explain away any discrepancies by attributing them to the unique nature of its operations. Aidit is concerned about the usefulness of ratio and trend analysis. However, the analysis is done at the completion of every audit and Aidit believes the calculations provide him with an overview of the client’s…
