SOAL PRELIM ATV.pdf - 1 You are an audit senior for Mills Co Mills Co was recently appointed as external auditors of Sleeptight Co for the year ending

SOAL PRELIM ATV.pdf - 1 You are an audit senior for Mills...

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1. You are an audit senior for Mills & Co. Mills & Co was recently appointed as external auditors of Sleeptight Co for the year ending 31 March 20X0 and you are in the process of Planning the audit. The Previous auditors issued an unmodified audit opinion last year and access to prior year working papers has been granted. Sleeptight’s principal activity is the manufacture sale of expensive high quality beds which are largely sold to luxury hotels and owners of holiday apartments. Each bed is crafted by hand in the company’s workshop. Construction of each bed only begins once a customer order is received, as each customer will usually want their bed to have a unique feature or to be in a unique style. The business is family run and all the shares in Sleeptight are owned by the two joint managing directors. The directors are two sisters, Anna and Sophie Jones, and they both have a number of other business interests. As a result they only spend a few days a week working at the company and rely in the small accounts department to keep the finances in order and to keep them informed. There is no finance director but the financial controller is a qualified accountant. Sleeptight requires customers who place an order to pay a deposit of 40% of the total order value at the time the order is placed. The beds will take 4 to 8 weeks ti build, and the remaining 60% of the order value is due within a week of the final delivery. Risks and rewards of ownership of the beds do not pass to the customer until the beds are delivered and signed for. Beds also come with a two-year guarantee and the financial controller has made a provision in respect of the expected costs to be incurred in relation to beds still under guarantee.
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Although the company does have some employees working in the workshop, it often uses external subcontractors to help make the beds in order to fulfil all its orders. These subcontractors should invoice Sleeptight at the end of each month for the work they have carried out, but sometimes do not get round to it until the following month The company undertakes a full count of raw materials at the year end. The quantities are recorded on inventory sheets and the financial controller assigns the costs based on the cost assigned in the previous year or, if there was no cost last year, using the latest invoice. Most beds are made of oak or other durable woods and the cost of these raw materials is known to fluctuate considerably. It is expected that work in progress will be insignificant this year, but there will be a material amount of finished goods awaiting dispatch. Anna Jones will estimate the value of these finished goods and has said she will take into account the order value when doing so.
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