Carla has developed a business of roasting coffee beans in the inner northern suburbs of Melbourne since 1995. This business has relied on supplying high- quality, fair-trade organic coffee to many of the small cafés in Melbourne. As the number of these cafés has grown and as there has been a growth in demand for coffee generally, her business has expanded. The business operates out of a small warehouse in Northcote. In the past five years, Carla has considerably expanded her operations and is now supplying a couple of major supermarket chains in Australia. The business is very profitable and the balance sheet is strong. During the growth period, the company actually bought a few cafés, which have so far performed well, and also provide a guaranteed customer base for her coffee.

Carla obtained a moderate loan from Northpac Banking Corporation to assist in funding her expansion. This loan is secured over the company assets. The company recently purchased a much larger warehouse in Preston with the funds from the loan. They plan to move operations to that location in the next financial year. Carla’s personal contacts have been instrumental in the growth of the business.

Carla has decided that it is time to do other things. She would like to sell the business and will depart as Chairman of the Board and Chief Executive Officer. The financial statements have been prepared by Wendy, the Chief Financial Officer. Carla decides to approach a dozen potential investors to offer them shares in her business and she gives them a copy of the latest set of financial statements prepared by Wendy. The latest financial statements show strong growth over the past five years and, in particular, the current year’s performance was very good – resulting in a bonus to the Chief Financial Officer. A number of the senior people in the company were given shares by Carla (including Wendy) and most of them are also considering selling out as well.
There was a recent press report in The Age that suggested that the coffee used by Carla’s Coffee was picked by child labour in Colombia working under terrible conditions. This breaches the rules of the fair-trade certification and the publicity is causing some of Carla’s customers to rethink their relationship with Carla’s Coffee.

a) Assume you have been appointed as an auditor for Carla’s Coffee. On what items in the financial report would you be focusing your main attention to provide users with an opinion that the financial report represents a true and fair view of the economic performance of Carla’s Coffee?
b) Would you have any particular concerns if it was the ‘dozen potential investors’ who had engaged you to undertake the audit?
c) What other aspects of the case study would concern you as an auditor and why?

Answer rating: 100% (QA)

A There has been vital growth within the companys assets These square measure vital figures as a result of the loan contains a claim on these assets a... View the full answer