You are an audit senior in Koeman & Co and you are planning the audit of a new client,
Goodison Co, for the year-ended 31 August 20X5. The audit manager has already held a
planning meeting with the finance director. He has provided you with the following notes of his
meeting and financial statement extracts.
The company recognizes revenue when the customer places an order as 95% of orders are
processed and dispatched the day they are received.
The allowance for doubtful receivables has been reduced from 4% of receivables to 2% of
receivables, as management claim there is a lower risk of irrecoverable debts since the company
employed an additional person in the credit control department.
Inventory is initially valued at cost, and management then performs a review of the aged
inventory listing to identify any write downs required. Inventory that is more than 180 days old
is written down by 20%.
The directors have agreed to pay themselves a profit related bonus for the year.
Financial statement extracts for year ending 31 August 2021 ?

Based on the above scenario, you are required to answer the following questions:

A: Explain the purpose of THREE contents required for all audit documentation.

B : Calculate FIVE ratios, for BOTH years, which would assist in planning the audit of Goodison
Co.
C : Using the information provided and the ratios calculated, describe Two audit risks and explain
the auditor’s response to each risk in planning the audit of Goodison Co.
Note: Prepare your answer using two columns headed Audit risk and Auditor's responsibility
respectively.

D : Describe substantive procedures the auditor should perform at the final audit to obtain
sufficient and appropriate audit evidence over the year-end inventory balance.

Revenue Cost of sales Gross profit Operating expenses Profit before interest and Tax Inventory Receivables Cash Trade payables Overdraft 2020 $m 17.25 8.25 9.0 5.5 3.5 1.5 3.5 - 1.2 0.5 2019 $m 13.0 8 5.0 3.0 2 1.2 2.0 1.7 0.8