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SCENARIO

You are undertaking the audit of a private company, Dobbie Pty Ltd, which operates a duty-free store with a turnover of $4 million a year. The company is run by a husband and wife team who are both the directors and only shareholders. On most days, either the husband or the wife is usually working in the store. There is also a part-time clerical assistant, Elizabeth, who is responsible for ail accounting- related tasks, including cash, debtors, inventory, payroll and creditors. There are two other part-time employees working in the store, and five casual employees as and when required on late nights and weekends. There are usually two staff rostered on outside peak times and four staff rostered on during peak times.

The premises, which are located at a local tourist area, are rented and consist of two rooms, The store is at the front, and this is where ali customers are served. There are two cash registers, and employees log on to a cash register. Approximately 30 per cent of the receipts are in the form of cash, and 70 per cent through credit cards. At the back is a staff room which includes tea-making and restroom facilities. There is also a temporary partition (screens on wheels) which encloses the area where Elizabeth works (this is known as the accounting office), and there is further temporary partitioning which encloses the shelving where additional stock is stored (the area is known as the storeroom). There is a sign that says this area is off-limits to customers, although when customers request, they are permitted to use the restroom facilities.

The company owns one desktop computer (kept in the accounting office), and all accounting and management information is stored on this computer. The machine runs the latest version of a widely used accounting package that was purchased from a reputable software provider. The software also provides them with sufficient information to complete their GST and other tax returns.

Elizabeth and the two principals of the business are the only ones who are allowed to use the computer, and this is regulated through a password system. Elizabeth lives by herself and she does not go out much, but she talks a lot about her pet cat, Cuddles. Elizabeth has not undertaken an accounting course at university, but has undertaken a one night a week 10-week accounting for non-accountants course, and has had one week's training on the software. She keeps the software user manual on the shelf beside her desk, and she refers to it regularly.

The software produces a monthly income statement and balance sheet. Monthly reconciliations of accounts receivable, inventory and accounts payable are also prepared by Elizabeth. However, the principals concentrate their review on the tax situation and the financial performance of the company.

Your task

Identify issues of audit concern in this small business environment, and outline the audit approach that would most likeiy be undertaken.