Case Study 2

YOUR CLIENT, GM LTD, is in the brewery business, and operates brewery and bottling plants

in various locations around the world. Each country has a Regional Processing Centre (RPC),

which acts as the accounting and administrative centre for that country. Each country

prepares financial data and summarises the information into a package format. This package

is submitted to head office in Perth on a monthly basis. Material balance sheet items consist

of inventories, accounts receivable, accounts payable, brand names and property, plant and

equipment. It is February 2015, you are currently planning the June 2015 audit and have the

following information. Each situation is to be considered independently:

1. Civil unrest in Country X makes it impossible for branch auditors to visit the RPC to

carry out audit procedures on your behalf. Due to a communications blackout, you

are unable to ascertain whether the RPC is still functional. Country X contributes

approximately 8% of GM's turnover.

2. In past years head office has maintained tight control over the operations of GM LTD.

However, in keeping with current Total Quality Management principles, many

functions formerly performed at head office are now performed by each RPC.

Management has expressed some concern at the quality of the monthly reporting

packages which it has been receiving, particularly those from the South Pacific

region.

3. Brand X beer comprises 30% of total revenues. A recent Brand X beer tasting festival

in Europe ended with hundreds of people being taken to hospital with severe

stomach cramps. The problem is believed to relate to contamination of the secret

ingredient used in the beer. This ingredient is produced centrally in Sydney and

distributed to all the breweries for use in their manufacturing operations.

Required: explain how each situation would affect your overall audit plan.