Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are the audit manager currently undertaking the planning of the audit for the financial year ended 30 June 2019 of Fancy Fashion Wholesale Ltd

You are the audit manager currently undertaking the planning of the audit for the financial year ended 30 June 2019 of Fancy Fashion Wholesale Ltd (FFWL), a large wholesaler of women's handbags.

You have the following additional information:

FFWL is known for always having the latest and most fashionable products available. These products are purchased from both local and overseas suppliers.

The company's market comprises large chain stores, established specialist handbag retailers and, more recently, 'up-market' accessory booths located in major shopping malls.

From the beginning of March 2019, most local purchases, at the request of FFWL's suppliers, have been on a Cash on Delivery (COD) basis.

It is now April 2019. You have performed preliminary analytical procedures using the 31 March 2019 management reports (ratios annualised in these instances) together with the audited figures for the previous two financial years (year end 30 June).

Results of ratio analysis

Year

Current ratio

Quick ratio

Accounts receivable turnover (days in accounts receivable)

Year-end Accounts receivable as a % of sales

Inventory turnover ratio

Sales returns as a % of sales

2019

1.01

0.52

79 days

23%

3.3 times

2.9%

2018

1.13

0.61

61 days

18%

4.2 times

2.3%

2017

1.21

0.64

56 days

14%

4.8 times

1.6%

Results of simple comparisons

Year

Accounts receivable

$'000

Gross sales

$'000

Inventory

$'000

2019

$14,452

$62,596

$16,622

2018

$13,342

$74,352

$12,480

2017

$12,268

$86,684

$11,638

REQUIRED

(a)Based on the information given, identify two key account balances at risk of material misstatement at 30 June 2019 and for each account,

(i)identify the key assertion at risk for each account.

(ii)identify 3 factors that justify your answer in a).Ignore going concern issues in your answer.

(b) Identify two (2) factors presented in the above information that suggest FFWL may have a going concern problem for the year ended 30 June 2019?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: J. David Spiceland, James Sepe, Mark Nelson, Lawrence Tomassini

5th Edition

0077282078, 9780077282073

More Books

Students also viewed these Accounting questions

Question

gpt 5 4 9 . .

Answered: 1 week ago

Question

13. Give four examples of psychological Maginot lines.

Answered: 1 week ago