- 20 Marks
Explain the importance of planning an audit per ISA 300. Prepare an audit strategy for Brooksides for the year ending 31 December 20X8 using provided financial data.
Question
You are the audit manager in charge of the audit of Seaford Supplies Ltd., a limited liability company. The company’s year-end is 31 December, and Seaford Supplies Ltd. has been a client for seven years. The company purchases and resells fittings for ships including anchors, compasses, rudders, sails, etc. Clients vary in size from small businesses making yachts to large companies maintaining large luxury cruise ships. No manufacturing takes place in Seaford Supplies Ltd.
It is now early in 20X8. Information on the company’s financial performance is available as follows:
| 20X8 Forecast | 20X7 Actual | |
|---|---|---|
| ₵’000 | ₵’000 | |
| Revenue | 45,928 | 40,825 |
| Cost of sales | (37,998) | (31,874) |
| 7,930 | 8,951 | |
| Gross profit | ||
| Administration costs | (4,994) | (4,758) |
| Distribution costs | (2,500) | (2,500) |
| Net profit | 436 | 1,693 |
| 20X8 Forecast | 20X7 Actual | |
| ₵’000 | ₵’000 | |
| Non-current assets (at net book value) | 3,600 | 4,500 |
| Current assets | ||
| Inventory | 200 | 1,278 |
| Receivables | 6,000 | 4,052 |
| Cash and bank | 500 | 1,590 |
| 10,300 | 11,420 | |
| Total assets | ||
| Capital and reserves | ||
| Share capital | 1,000 | 1,000 |
| Accumulated profits | 5,300 | 5,764 |
| Total shareholders’ funds | 6,300 | 6,764 |
| Non-current liabilities | 1,000 | 2,058 |
| Current liabilities | 3,000 | 2,598 |
| 10,300 | 11,420 |
Other information
The industry that Seaford Supplies Ltd. operates in has seen moderate growth of 7% over the last year.
Non-current assets mainly relate to company premises for storing inventory. Ten delivery vehicles are owned with a net book value of ₵300,000.
One of the directors purchased a yacht during the year.
Inventory is stored in ten different locations across the country, with your firm again having offices close to seven of those locations.
A computerised inventory control system was introduced in August.
Inventory balances are now obtainable directly from the computer system. The client does not intend to count inventory at the year-end but to rely instead on the computerised inventory control system.
(a) According to ISA 300, the auditor should plan the audit work so that the engagement will be performed in an effective manner.
Required:
Explain why it is important to plan an audit
(b) Using the information provided above, prepare the audit strategy for Seaford Supplies Ltd. for the year ending 31 December 20X8.
Find Related Questions by Tags, levels, etc.
- Tags: Audit Efficiency, Audit Planning, Audit Strategy, ISA 300, Resource Allocation
- Level: Level 2
- Topic: Planning an Audit