You are an Audit Trainee at Finley Auditors (Finley). You are currently part of the audit team of Horizon Ltd (Horizon). Horizon is a new client of Finley Auditors. Horizon is listed on the Johannesburg Stock Exchange (JSE).

Background information of Horizon

Horizon is a South African electric vehicle (EVs) manufacturer located in the Eastern Cape. The entity has a 28 February financial year-end.

Horizon is in a fortunate position as the majority of raw materials required to manufacture vehicles, whether referring to electric or fuel vehicles, are produced (i.e., mined) locally in South Africa for example, steel, copper, nickel, etc.

The one primary component, which is not currently produced in SA, is the battery of the EVs. The reason for this is that Horizons Engineers are still refining the manufacturing thereof to obtain effective and consumer-safe EV batteries. In the interim, Horizon imports these batteries from an American supplier.

System description Revenue and sales

Horizon has 10 experienced Sales Consultants who do the marketing and sales of EVs across the Eastern Cape. Sales Consultants are issued with boxes of pre-printed EV information packs, which they hand out to customers upon their visits.

Sales Consultants record orders on electronic tablets, which generate blank order forms with pre-set selling prices.

Price increases are implemented by the Sales Manager on the sales-price Masterfile on an ad hoc basis, based on product cost and popularity in the local market.

All sales are done on credit. Credit payment terms and any discounts negotiated are allowed at the discretion of the Sales Consultants. The Sales Consultants state the discount agreed upon on the form on the table, the customer signs the form to indicate they have agreed to those terms. The Sales Manager takes the discounts granted into consideration when calculating sales consultants commissions at the end of each month.

When Sales Consultants return to Horizons premises on a weekly basis, they provide their tablets to the Warehouse Manager. The Warehouse Manager prepares pre- numbered delivery notes, in duplicate, from the information on the tablets. The delivery notes are handed to the Warehouse Clerk who commences packing the items. Physical security over access to the warehouse is adequate.

Two copies of the delivery note are handed to the Delivery Clerk, he/she then collects the goods for delivery and delivers the goods to customers.

The customer keeps one copy of the delivery note, whilst the customer signs the second copy as proof of receipt. The Delivery Clerk returns the second, signed copy of the delivery note to the Warehouse Manager. The Warehouse Manager attaches the signed delivery note to a copy of the order that he has printed and hands these to the Invoice Clerk. The Invoice Clerk prepares invoices from these documents.

The Accountant enters the invoices in the sales journal and debtors ledger.

The Accountant opens incoming mail and is responsible for entering payments received from customers in the cashbook and debtors ledger. The Accountant deposits the money on a daily basis if and when cash payments are received. On the rare occasion that customers are unhappy and choose to return some EVs, the Accountant issues a credit note, which is entered into the system in the same way as invoices. Sales and debtors accounts are reversed with the relevant amount.

REQUIRED:

1.1 Describe any risks of material misstatement relating to revenue and sales for the 2023 financial year-end. For each risk, provide the specific assertion.

(10 marks)