Esparto Ltd (E) is a paper and cardboard manufacturing company whose year-end is 31 March 1989. The auditors are visiting the company early in January 1989 in order to plan their audit approach for the 1989 year-end.

They have obtained copies of the 1989 management accounts and are comparing these with budgets and actual results for previous years in order to gain an insight into E’s performance and to identify any areas which may pose problems at the year-end..........

QUESTIONS FOR DISCUSSION
1. You are responsible for planning the audit of Esparto for the year ending 31 March 1988. Using the information the case study gives about the company, identify those areas which you consider to present potential audit risks.
2. Using the schedules summarizing management accounts, identify the main trends in the company’s performance this year. What questions should the auditor ask in order to gain a fuller understanding of E’s performance and prospects?