The Enormous Electrical Company Ltd (EE) was formed in March 19X8 by the merger of two smaller
Question:
The Enormous Electrical Company Ltd (EE) was formed in March 19X8 by the merger of two smaller companies. It retails household electrical appliances of all kinds through a chain of thirty shops which it owns all over the UK.
These are supplied from three warehouses, in Bristol, Birmingham and Glasgow. EF’s first financial statements are for the period ending 31 December 19X8. The newly appointed financial controller drafted the stocktaking instructions to be followed by the warehouse and shop managers. The warehouse instructions are given in Document 5.1. EE’s auditors attended all the three warehouse stocktakes (and a sample of the counts at shops). The audit working papers for the Bristol warehouse are given in Document 5.2.
1. The company’s financial year-end will be 31 December 19X8 and a full count is to be carried out of all stocks held in the warehouses at that date.
Please read the following instructions carefully and ensure that they are adhered to. Contact me as soon as possible if you need any clarification or if you anticipate any problems......................
QUESTIONS FOR DISCUSSION
1. What controls are present in the stocktaking instructions issued to the warehouse managers? What controls have been omitted and what effect might this omission have on the results of the stocktake?
2. In your opinion, is there any other audit work which should have been carried out at this stocktake? What would it have achieved? Do you consider that the auditor has drawn the right conclusions from his findings?
Step by Step Answer:
