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You are the audit manager in the accountancy firm of Trevelyan LLP that is the auditor of Polsson Computers ple, a company that distributes computers
You are the audit manager in the accountancy firm of Trevelyan LLP that is the auditor of Polsson Computers ple, a company that distributes computers and information technology to the retailers in the UK. The company is a geographically dispersed entity with twenty depots that are strategically located to distribute the goods in a number of regions. It is a relatively small ple but is growing quickly. The sales and profits are approximately twice as big as in the previous year. Key figures (nearest Emillion) for the business in the year ended 31 December 2020 are as follows: Turnover 98 million (46 million in previous year) Gross Profit 62 million Net Profit before Tax 21 million Profit after Tax 17 million Total Net Assets 45 million Non-current Assets 252 million (property of 170m and plant of 60m) Non-current Liabilities 77 million (comprising bank loans) Current Assets (35 million comprising the following items) Inventories 9 million Trade and other receivables E22 million (all trade apart from VAT of 0.5m) Cash and liquid investments 4 million Current Liabilities (E23 million comprising the following items) Trade Payables 19 million Tax Payable 4 million Required: As audit manager you decide to write a short report to help the audit senior and the rest of the audit team with an overview and an outline of specific issues in auditing receivables in a company such as Polsson Computers plc. The report should address the following requirements: a Consider the key elements in the audit plan for receivables. Set out a clear summary of the matters relating to: completeness exdstence, rights and obligations, valuation and cut-off (10 marks) b) Explain why you would undertake a 'receivables confirmation' test and explain how you would do this. Include how you would draft the request circularisation letter and how you would approach the sampling of accounts, giving examples of the types of accounts to be included. (7 marks) c) Explain the importance of considering sales (and trends in turnover) when you are auditing trade receivable. Explain why you would include an analytical review (ideally showing your own calculations - you may assume that trade receivables were 6 million in the previous year compared to 22 million in the year ended 31 December 2020) when testing completeness. (7 marks) Total 24 marks)
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