Question
AP15.6 (LO 4) Audit reports and other communication at the end of an audit Steven Edwards has had difficulties throughout the audit of Kingston Catering.
AP15.6 (LO 4) Audit reports and other communication at the end of an audit Steven Edwards has had difficulties throughout the audit of Kingston Catering. The company is a long-standing client of the audit firm and there have been no problems in the past. However, four months into the start of the fiscal year, the company's IT systems failed. Subsequent diagnostic tests revealed that a particularly nasty virus had infected the IT system and corrupted all the processed data. The IT manager called in an IT specialist for advice as soon as the problem was discovered. The specialist installed a new IT system and additional security programs, and the IT manager is confident that the problem will not recur.
The processed data had been backed up and stored in a secure location, but when a restoration was attempted it was discovered that the virus also corrupted the backups. The Kingston Catering staff tried to reconstruct the files based on paper records, but the reconstruction was incomplete because some paper documents had been inadvertently destroyed.
Steven is particularly concerned about sales and accounts receivable. Kingston Catering has many "one-time" customers as well as several large accounts. The first four months of the year corresponded to the busiest time of the year for the company. Staff attended many corporate and private functions during this time and made numerous sales of catering equipment to wholesale and retail customers (or at least they think they did). They believe that they collected all the accounts. Steven is not so sure. He thinks the chaos caused by the computer virus meant that deliveries were being made in a rush without the completion of the appropriate paperwork, and the attempts to collect accounts were ineffective as customers took advantage of the situation to claim they had either already paid or had returned goods for credit. Other customers simply "fell off" the system and were never billed.
Required
a. Evaluate Steven's audit report options and draft the audit report that you would recommend be issued.
b. Make a list of matters Steven would include in the communication to those charged with governance at Kingston Catering.
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