Colossal Farm Ltd is a major wool producing company currently valued at $100m. Land holdings extend across NSW and Queensland, with the total property under management of over 500,000 hectares.

Colossal Farm have recently engaged your audit firm (KG Professional Services) to complete the year end audit.

Preliminary information provided includes:

• Land under management of 503,000 hectares (ha) - consisting of 357,000ha of arable country of which 262,000ha is freehold and 95,000ha is leasehold.
• A listing of an extensive range of infrastructure including more than 25 good quality houses ( on land with separate ownership titles), 12 shearing sheds, and 25,000 tonnes of on-farm storage capacity.
• Plant and equipment identified as 3 headers, 1 seeders, 1 sprayers, 2 prime movers, 3 large tractors, 2 small tractors, 10 all terrain vehicles and 1 helicopter.
• There is a flock of more than 100,000 Merinos. They are managed in separate holding groups according to a grading classification (A, B, C) which is dependent on prior yield per unit and age.
• The financial system has a subsidiary stock management system that includes the following fields:
  • Wool grade - based on fibre, length, strength, color, etc. This affects the total inventory valuation.
  • Wool quantity - in terms of weight. This affects the total inventory valuation.
  • Wool location - such as farm, warehouse, or distribution centre. This affects the calculation of relevant transportation and storage costs.
  • Wool status - indicates the status of the wool, such as raw, processed, sold. This affects the identification of production and sales cycle, and profitability of the wool product.
  • Wool cost - the total cost of the wool, including purchase price, processing costs, transportation costs, and storage costs.

Required:

As the KG Professional Services audit manager appointed to this engagement, discuss the following:

Part a - Audit Planning (6 marks)

• Identify the problems in planning for the observation of physical inventory on this engagement due to the:
  • Different locations of inventory
  • Nature of the inventory
• Outline the value of analytical procedures in preparing the audit plan, and identify at least 2 (two) inventory related examples that could be used on this audit.

Part b - Computer Assisted Audit Techniques (4 marks)

• Discuss two (2) tests using CAATs that can be employed to audit the Colossol Farm cost of goods sold, including features of Active Data for Excel?
• Discuss two (2) program controls that could be implemented to reduce the risk of cost of goods sold misstatements?