You are the audit partner at Smart Auditors Inc. For the month of April 2020, you have received the following technical queries relating to different audit clients. Please note that the matters below are not related. Matter 1: In terms of the basic evidence gathered on the audit of We Fix (Pty ) Ltd, the auditor noted that inventory with a cost of N$500 000 and a net realisable value of N$750 000 has been recorded at the net realisable value amount. The issue has been discussed with management and they have refused to correct the misstatement. Matter 2: On the audit of Grey Fade (Pty) Ltd, based on the audit evidence obtained, the auditor concluded that there are material uncertainty relating to events and conditions which cast significant doubt on the company’s ability to continue as a going concern. However, the audit committee and management had come to the same conclusion and adequate disclosure in the financial statements relating to the material uncertainty had been made. The auditor was satisfied with the treatment after conducting extensive procedures on the matter itself and its disclosure. Matter 3: Belinda Beauty Care (Pty) Ltd experienced a fire few weeks before 31 May 2020 destroying much of the company’s administrative office. Most of the company’s records were restored using the backup files that were kept offsite. However, due to the failure of the debtors manager to back up the debtors masterfile on a regular basis, no data was available to verify the debtors balance of N$ 2.8 million at period end. We are satisfied that despite this setback, Belinda Beauty Care (Pty) Ltd will still be a going concern for the foreseeable future. The final materiality figure for this audit has been set at N$ 1.8 million. Matter 4: Quality Furniture Ltd sells different types of furniture to customers. During the audit of revenue it was discovered that when goods (furniture) has been sold and it is delivered to the customer, some customers do not sign on the delivery notes as evidence that they have received the goods. In terms of the company’s controls, all the delivery notes should be signed by the customer upon delivery. No other concerns were revealed by the audit procedures performed on property, plant and equipment. The actual deviations in the population that has been tested is 7.5% which has not exceeded the tolerable rate of deviation for this audit which is 10% Required: For each matter above, assist the audit team with the impact each matters on the audit opinion that should be expressed on the 2020 annual financial statements for each client. Discuss your answer under the following headings: Matter 1 (6) Matter 2 (4) Matter 3 (5) Matter 4 (4)
You are the audit partner at Smart Auditors Inc. For the month of April 2020, you have received the following technical queries relating to different audit clients. Please note that the matters below are not related.
Matter 1: In terms of the basic evidence gathered on the audit of We Fix (Pty ) Ltd, the auditor noted that inventory with a cost of N$500 000 and a net realisable value of N$750 000 has been recorded at the net realisable value amount. The issue has been discussed with management and they have refused to correct the misstatement.
Matter 2: On the audit of Grey Fade (Pty) Ltd, based on the audit evidence obtained, the auditor concluded that there are material uncertainty relating to events and conditions which cast significant doubt on the company’s ability to continue as a going concern. However, the audit committee and management had come to the same conclusion and adequate disclosure in the financial statements relating to the material uncertainty had been made. The auditor was satisfied with the treatment after conducting extensive procedures on the matter itself and its disclosure.
Matter 3: Belinda Beauty Care (Pty) Ltd experienced a fire few weeks before 31 May 2020 destroying much of the company’s administrative office. Most of the company’s records were restored using the backup files that were kept offsite. However, due to the failure of the debtors manager to back up the debtors masterfile on a regular basis, no data was available to verify the debtors balance of N$ 2.8 million at period end.
We are satisfied that despite this setback, Belinda Beauty Care (Pty) Ltd will still be a going concern for the foreseeable future.
The final materiality figure for this audit has been set at N$ 1.8 million.
Matter 4: Quality Furniture Ltd sells different types of furniture to customers. During the audit of revenue it was discovered that when goods (furniture) has been sold and it is delivered to the customer, some customers do not sign on the delivery notes as evidence that they have received the goods. In terms of the company’s controls, all the delivery notes should be signed by the customer upon delivery. No other concerns were revealed by the
The actual deviations in the population that has been tested is 7.5% which has not exceeded the tolerable rate of deviation for this audit which is 10%
Required:
For each matter above, assist the audit team with the impact each matters on the audit opinion that should be expressed on the 2020 annual financial statements for each client.
Discuss your answer under the following headings:
- Matter 1 (6)
- Matter 2 (4)
- Matter 3 (5)
- Matter 4 (4)
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