The audit of Fruitful Hill Ventures’ financial statements for the year ended 30 November 2017 is nearing completion and the auditor’s report is due to be signed next week. Fruitful Hill Ventures manufactures parts and components for the aviation industry. You are conducting an engagement quality control review on the audit of
The audit of Fruitful Hill Ventures’ financial statements for the year ended 30 November 2017 is nearing
completion and the auditor’s report is due to be signed next week. Fruitful Hill Ventures manufactures parts and
components for the aviation industry. You are conducting an engagement quality control review on the audit of
Fruitful Hill Ventures which is a listed entity and a significant new client of your firm. The draft financial
statements recognise revenue of $8.7 million, assets of $15.2 million and profit before tax of $1.8
million. You have identified the following issues as a result of your review:
(i) The planned audit approach to trade payables was to place reliance on purchasing controls and keep
substantive tests to a minimum. During controls testing on trade payables, from a random statistical sample, the
audit team identified three purchase orders which had not been authorized by the procurement manager. On
review of the supporting documentation, the audit team concluded that the items were legitimate business
purchases and therefore no additional procedures were required.(ii) Following a review of petty cash transactions, the audit assistant identified that the petty cashier paid for
taxi fares for personal, non-business journeys with a total value of $175. Following discussions with the
audit assistant, you have ascertained that he did not report the matter further as the amount is immaterial. The
audit assistant also commented that the petty cashier is his brother and that he did not want to get him into
trouble.
(iii) Cut-off testing on revenue has identified two goods dispatch notes, dated 2 December 2017, for items sent
to Ouagadogou Ltd, with a combined sales value of $17,880 which had been included in revenue for the
year ended 30 November 2017. The client’s financial controller, Ben, has explained that Frankie's
Ltd does not order on a regular basis from Fruitful Hill Ventures. In the absence of a regular payment history
with Frankie's Ltd therefore, and in order to minimise the receivables collection period from this particular
customer, the sales invoice is raised and sent to the customer on the same day that the sales order is received.
The average time period between the receipt of an order and dispatching the goods to the customer is
approximately one to two weeks. The audit working papers have concluded that no further investigation is
necessary.
(iv) The Finance Director, Finland, has not completed the tax computation for the year ended 30
November 2017. He has recently asked the audit assistant to calculate the company’s tax payable for the year
on the basis that as a recently qualified chartered certified accountant, the audit assistant was more up to date
with recent changes in tax legislation.
Required: Evaluate the quality control issues and the implications for the completion of the audit including
any further actions which should be taken by your audit firm. Your answer should include the matters to be
communicated to management and to those charged with governance in relation to the audit of Fruitful Hill
Ventures
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