Question
Just before its year end, Home Ladders Ltd, appointed your firm as its auditor. The company buys and sells a range of ladders suitable for
Just before its year end, Home Ladders Ltd, appointed your firm as its auditor. The company buys and sells a range of ladders suitable for both the professional construction industry and the amateur home decorator. The company is owned and managed by Mrs Brent who took over the running of the company on the death of her husband 10 years ago. Home Ladders reports a small profit each year. You attended the inventory count on the last day of the financial year and performed various test counts with satisfactory results. However, late in the day you noticed several suppliers trucks carrying inventory for delivery coming in to the warehouse and about the same time several Home Ladders trucks leaving the warehouse carrying inventory despatched for delivery to customers. No record was made of these last-minute inventory movements. The warehouse staff who had been conducting the count had left. Mrs Brent told you to ignore the matter since the suppliers deliveries probably amounted to the same as the despatches to customers. She also said that when the same thing had happened last year, the previous firm of auditors were not concerned and, anyway, the amounts involved were not significant in terms of total inventory moving through the warehouse in the year. In one corner of the warehouse, you noticed that there were a large number of ladders marked as defective or unsafe. Although they looked in good condition to you, Mrs Brent explained that these ladders would have to be written off because they could not be returned to the supplier who had gone out of business. In another corner of the warehouse, you discovered a very expensive sports car. It was brand new. Mrs Brent explained that she was storing it for a friend. Next to the warehouse, Home Ladders has a trade counter where customers place their orders. Most pay in cash because Mrs Brent gives a good discount compared to prices charged for credit card sales. Mrs Brent deals with all sales noting cash takings on a small pad of paper. What possible audit tests could you perform in response to your concerns and what would be your options if your tests did not provide satisfactory assurance? (10 marks)
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