Australia AUDITING CORPORATE ENTITIES assignment

Background You are the senior auditor on the audit of Unique Furniture Manufacturers Pty Ltd (Unique). Your firm has recently been appointed as the first auditors of the company. You interview the managing director of the company to obtain background information on Unique and to understand its business operations, its environment and system of internal control. Unique was founded 30 years ago and makes 'grandfather clocks (freestanding, weightdriven, pendulum clocks). The clocks are made in one factory (situated in the Blue Mountains) and are distributed through boutique homeware and antique furniture stores. The clocks are advertised mainly in local newspapers and through pamphlet drops. In order to promote longer production runs and minimise finished goods stocks, Unique's retail distributors are offered stock on a sale or return' basis. This means that the homeware and antique furniture stores are invoiced immediately, subject to a 90-day term of payment, but are allowed to return the stock up to 30 day:s before payment is due. Only the marketing manager has been given the authority to make these offers All of Unique's timber is obtained from offshore sources. Timber prices, which are denominated in US dollars, have risen substantially over the past two years and the recent drop in the value of the Australian dollar has caused them to rise even further. Timber purchases are secured by providing Unique's suppliers with letters of credit which become due when the container shipment of timber arrives in Australia. Labour costs are high due to the craftsmanship and quality required for the production of the grandfather clocks. Skilled labour is not easy to obtain and wage rates have recently risen. Unique has found it difficult to pass on these timber and labour price increases to customers An analysis of costs indicates that there have been material negative purchase price variances in purchases of timber over the course of the year. You have compiled the following information from Unique's financials the current ratio as at 30 June 2014 is 1.24 on an annualised basis, net sales are $350,000 the shareholders' funds to total assets ratio is 30% gross profit margins and net profit margins for the year ended 30 June 2014 have dropped to the level where losses are being incurred