Audit question

Question 7: Substantive Tests You have been engaged to audit the financial statements of Brew Ltd for the financial year ended 30 September 2017. The company is well established and has been selling craft beer to around 50 popular local restaurants and bars for the past 10 years. The company has good internal controls and keeps detailed records of sales, which allow for weekly analysis by customer. Sales are seasonal (demand is higher in summer), but highly predictable due to the trends identified over the past 10 years and the relatively loyal and stable customer base. John Castle, the managing director and major shareholder is fairly relaxed about reporting deadlines as long as Companies Act requirements are met. John Castle has confided to you that he is a little concerned about their data capture processes for the two weeks 25 September to 8h October. They were sending out substantial quantities of craft beer to customers over this period as demand increased due to traditional local Spring festival celebrations. Unfortunately, their accountant Jayed was very ill around this time with flu. A large pile of sales invoices and delivery notes accumulated over the two weeks. Jayed has employed a temporary assistant to help catch up with capturing these sales onto their accounting information system from, but she has been complaining that the assistant keeps using the current date rather than the date of sale when entering the sales. You are currently planning the audit of the Accounts receivable and Sales balances. Required: a) Briefly explain how the information provided in the first paragraph of the scenario above would affect the nature, timing and extent of substantive procedures for sales; (6 marks) b) Briefly explain: i. Which assertion is at risk due to Jayed's illness and subsequent arrangements to catch up on capturing sales; (1 mark) ii. The potential misstatement this is likely to cause for sales and debtors; (1 mark) What audit procedures, including the use of CAATs, you would carry out to address this risk (2 marks) [Q7: Total 10 marks Question 7: Substantive Tests You have been engaged to audit the financial statements of Brew Ltd for the financial year ended 30 September 2017. The company is well established and has been selling craft beer to around 50 popular local restaurants and bars for the past 10 years. The company has good internal controls and keeps detailed records of sales, which allow for weekly analysis by customer. Sales are seasonal (demand is higher in summer), but highly predictable due to the trends identified over the past 10 years and the relatively loyal and stable customer base. John Castle, the managing director and major shareholder is fairly relaxed about reporting deadlines as long as Companies Act requirements are met. John Castle has confided to you that he is a little concerned about their data capture processes for the two weeks 25 September to 8h October. They were sending out substantial quantities of craft beer to customers over this period as demand increased due to traditional local Spring festival celebrations. Unfortunately, their accountant Jayed was very ill around this time with flu. A large pile of sales invoices and delivery notes accumulated over the two weeks. Jayed has employed a temporary assistant to help catch up with capturing these sales onto their accounting information system from, but she has been complaining that the assistant keeps using the current date rather than the date of sale when entering the sales. You are currently planning the audit of the Accounts receivable and Sales balances. Required: a) Briefly explain how the information provided in the first paragraph of the scenario above would affect the nature, timing and extent of substantive procedures for sales; (6 marks) b) Briefly explain: i. Which assertion is at risk due to Jayed's illness and subsequent arrangements to catch up on capturing sales; (1 mark) ii. The potential misstatement this is likely to cause for sales and debtors; (1 mark) What audit procedures, including the use of CAATs, you would carry out to address this risk (2 marks) [Q7: Total 10 marks