- 20 Marks
TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting
Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.
Question
In order to assist businesses during the COVID-19 period, the Government of Ghana has announced various packages including financial assistance to various companies and other Small and Medium Enterprises. Your firm, Prosper & Co has been approached to perform an assurance engagement for God’s Time Ltd; the engagement will be a review of prospective financial information which is needed to support the company’s application for financial assistance provided under COVID-19 facilities. God’s Time Ltd had its financial year ended 31st December each year.
The operating profit forecast for the two years to 31st December 2020 prepared by a member of the accounting team of God’s Time Ltd is shown below, along with some accompanying notes.
| Six months to 30th June 2019 | Six months to 31st Dec. 2019 | Six months to 30 June. 2020 | Six months to 31st Dec. 2020 | |
|---|---|---|---|---|
| GH¢ | GH¢ | GH¢ | GH¢ | |
| Earnings | 2,801,597 | 3,088,680 | 4,210,265 | 4,429,728 |
| Direct costs | 2,135,938 | 2,315,746 | 3,413,711 | 3,618,584 |
| Gross Profit | 665,659 | 772,934 | 796,554 | 811,144 |
| Operating Exp. | ||||
| Wages & Salaries | 168,452 | 184,864 | 209,546 | 218,762 |
| Advertising | 13,840 | 20,542 | 28,548 | 31,540 |
| Design costs | 21,580 | 32,456 | 50,452 | 43,546 |
| Marketing | 10,896 | 12,458 | 16,520 | 34,450 |
| Interest on Loan | 45,543 | 48,620 | 51,654 | 60,542 |
| Other Operating Exp | 266,264 | 309,173 | 318,622 | 324,458 |
| Net Profit | 139,084 | 164,821 | 121,212 | 97,846 |
Additional Notes: i. God’s Time Ltd is a producer of greetings cards and giftware; the demand for which is seasonal in nature.
ii. Design costs are mostly payroll costs of the staff working in the company’s design team, and the costs relate to the design and development of new product ranges.
iii. The total ‘Other expenses’ is calculated based on 40% of the projected revenue for the six-month period.
iv. In 2019, the company was granted a loan facility to complete the ongoing factory project.
Required:
Recommend the examination procedures which should be used in the review of the profit forecast. (B)
You are the supervisor in-charge of the audit of Titi bidi Construction Company Limited. The audit of the company is near completion, and you are finalizing the audit report. As part of your final review, you want a confirmation that, the tax liability as reported is accurate and as such there is no liability that has not been captured.
Required:
Outline the audit steps to verify that, all tax payments and tax credits has been captured and the liability as reported is accurate.
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