TV Tasty Ltd (TV) is in an industry which manufactures frozen food goods for the consumer market.
Question:
TV Tasty Ltd (TV) is in an industry which manufactures frozen food goods for the consumer market. It is a mature industry with traditional customer loyalty being eroded by take-away foods. Your firm had audited the company for the past two years. From your experience and discussion with the client you know the following:
• Demand for the product is ‘flat’. There is a trend towards purchase of generic brands by customers. As a result, TV has embarked on an extensive advertising campaign.
• TV has established markets in the UK and has recently been attempting to move into Europe.
• Asa result of the regulatory body’s directive, a recent press release stated that TV’s products would be subject to price controls. Plans to build a new factory have been scrapped.
• In the past, research and development costs have been written off in a manner not consistent with that recommended by the Accounting Standards. The effect has been immaterial and, consequently, the company has not received an audit qualification.
A comparative ratio analysis of TV Tasty Ltd is shown in the table below.
Required
(a) What areas of the audit need to be more closely reviewed due to the above ratios, and why?
(b) What would be the impact on your audit plan based on all of the information obtained from the client?
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