Belso Co manufactures womens clothing and its year end was 31 July 2019. You are an audit supervisor of Serlam & Co and the year-end audit for Belso Co is due to commence shortly.

The draft financial statements recognize profit before tax of GHS 2,600,000.00 and total assets of GHS18,000,000.00. You have been given responsibility for auditing receivables, which is a material balance, and as part of the audit approach, a positive receivables circularization is to be undertaken.

At the planning meeting, the Finance Director of Belso Co informed the audit engagement partner that the company was closing one of its smaller production sites and as a result, a number of employees would be made redundant. A redundancy provision of GHS110,000.00 is included in the draft financial statements.

Required:

(a) Describe the steps the auditor should perform in undertaking a positive receivables circularization for Belso Company Ltd. (10 marks)

(b) Describe substantive procedures, other than a receivables circularization, the auditor should perform to verify receivables in the financial statement. (5 marks)

(c) Describe substantive procedures the auditor should perform to confirm the redundancy provision at the year end. (10 marks)

A few months have now passed and the audit team is performing the audit fieldwork including the audit procedures which you recommended over the redundancy provision. The team has calculated that the necessary provision should amount to GHS 305,000.00. The Finance Director is not willing to adjust the draft financial statements.

Required:

Discuss the issue and describe the impact on the auditors report, if any, should this issue remain