CAT_T8_CS_C3_Cycles_Sales - CASE STUDY ANALYTICAL...

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CASE STUDY – ANALYTICAL PROCEDURES 1 You are the manager responsible for the audit of Newstead Products, a limited company, for the year ended 30 September 20X9. The company is a wholesaler of do-it-yourself products. It operates from rented premises; its non-current assets comprises motor vehicles, a microcomputer and some minor fixtures and fittings. The accounting records (sales ledger, purchase ledger, nominal ledger and payroll) are maintained on a microcomputer by a bookkeeper, and a part-time accountant prepares the annual accounts and quarterly management accounts. The summarised draft accounts for the year ended 30 September 20X9, and the previous year's audited accounts, are as follows. The company sells low value items to a large number of customers. Most sales are on credit, with less than 5% of sales being in cash. It has over 700 'live' accounts on the sales ledger of which 70% are new customers in the past year. You have carried out
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audit checks on the accounting systems and these tests have shown that the systems are generally reliable. However, there is no formal system for recording receipt of goods; the only record of receipt of goods is the supplier's delivery note, but as this is not dated by the goods received department, there is a greater risk of purchases cut-off errors. Your review of the accounts is to enable you to plan the audit of the year-end accounts, so that guidance is given to the audit staff and more time is spent in areas of highest audit risk. Required (a) Calculate appropriate ratios for both years, and comment on the financial performance of Newstead Products for the year ended 30 September 20X9, both in comparison with the previous year and in absolute terms. (b) From your review of the financial statements and the other matters included in the question, suggest the amount of audit work you should perform and the particular procedures you should carry out to minimise the audit risk for the following items appearing in the final accounts: (i) Inventory and gross profit margin (ii) Trade accounts receivable (iii) Trade accounts payable (iv) Bank overdraft and cash flow forecast CASE STUDY – INVENTORY 1 Jacky, a limited liability company, manufactures high fashion jeans for distribution to wholesalers and retailers. You have been assigned to the audit of inventory in the company's financial statements for the year ended 31 July 20X3. The following points are relevant to the audit. (i) The company has raw materials, consumables and work in progress inventory at its factory base. Finished goods are stored in a separate warehouse located five miles away. The company does not hold inventory owned by third parties. (ii) On 31 July 20X3 employees of the company will physically count the inventory at both of the company's sites and members of your audit team will be in attendance. (iii) The company has significant quantities of finished goods inventory held by
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CAT_T8_CS_C3_Cycles_Sales - CASE STUDY ANALYTICAL...

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