QUESTION 7: AUDIT PROCEDURES & SAMPLING

You are an audit senior working on planning for Targi Ltd, a wholesaler of household goods. The company has a 31 December year-end and closes for Christmas from 15 December to 15 January. Consider the following audit objectives and supplementary information on each and answer the questions that appear in the Required below them.

1. Audit Objective: Ensure all sales transactions for the period have been recorded. Supplementary Information: A large number of sales are made during the year, all of which are initiated by an internally generated Customer Order

2. Audit Objective: Ensure that sales are recorded in the correct period. Supplementary Information: Only 13 material sales were made to debtors during December/ January due to the Christmas holiday arrangements and conscious efforts to ensure Buzz Ltds retail customers were well stocked before the Christmas rush. Other sales over December/January were together considered immaterial.

3. Audit Objective: Ensure that the recorded accounts receivable are valid. Supplementary Information: As the company is a wholesaler, it sells only to large retail chains and consequently has only 7 large debtors at year-end.

Required: For each of the audit objectives above:

a) State the most relevant assertion(s) for the objective concerned. (3 marks)

b) Give an example of an audit procedure you believe would best satisfy the audit objective. (3 marks)

c) Select the most appropriate means of gathering audit evidence from the following options and briefly explain your selection: (3 marks)

i. 100 per cent examination;

ii. Selecting specific items;

iii. Audit sampling