You are the audit manager of David & Goliath (DG) and you are currently reviewing the audit files for several of your clients for which the audit fieldwork is complete. The audit seniors have raised the following issues: 4 Summit Ltd (Summit) Summit is a large provider of marketing services to the tourist industry. Summit's year end is 31 December, however, subsequent to year-end the company's sales ledger has been corrupted by computer virus. Summit's finance director was able to produce the financial statements prior to this occurring; however, the audit team has been unable to access the sales ledger to undertake detailed testing of revenue or year-end receivables and there are no backups available for the sales ledger. All other accounting records are unaffected. Summit's revenue is $15.6m, its receivables are $3.4m and profit before tax is $2m. Green Ltd (Green) Green is a large stationery company that has experienced difficult trading conditions and as a result it has lost significant market share. The cash flow forecast has been reviewed during the audit fieldwork and it shows a significant net cash outflow. Management are confident that further funding can be obtained and so have prepared the financial statements on a going concern basis with no additional disclosures; the audit senior is highly sceptical about this. The prior year financial statements showed a profit before tax of $1.2m; however, the current year loss before tax is $4.4m with owners' equity close to zero and the forecast net cash outflow for the next 12 months is $5.2m. REQUIRED (a) Discuss the impact on the financial statements and of the audit of each issue, including an assessment of whether it is material. (4 marks) [Type Answer Here] (b) For each issue, design two (2) procedures that the audit team should undertake at the completion stage to try to resolve the issue. (4 marks) [Type Answer Here] (C) For each issue, describe the impact on the auditor's report if the issue remains unresolved. Justify your answer. (6 marks) [Type Answer Here] You are the audit manager of David & Goliath (DG) and you are currently reviewing the audit files for several of your clients for which the audit fieldwork is complete. The audit seniors have raised the following issues: 4 Summit Ltd (Summit) Summit is a large provider of marketing services to the tourist industry. Summit's year end is 31 December, however, subsequent to year-end the company's sales ledger has been corrupted by computer virus. Summit's finance director was able to produce the financial statements prior to this occurring; however, the audit team has been unable to access the sales ledger to undertake detailed testing of revenue or year-end receivables and there are no backups available for the sales ledger. All other accounting records are unaffected. Summit's revenue is $15.6m, its receivables are $3.4m and profit before tax is $2m. Green Ltd (Green) Green is a large stationery company that has experienced difficult trading conditions and as a result it has lost significant market share. The cash flow forecast has been reviewed during the audit fieldwork and it shows a significant net cash outflow. Management are confident that further funding can be obtained and so have prepared the financial statements on a going concern basis with no additional disclosures; the audit senior is highly sceptical about this. The prior year financial statements showed a profit before tax of $1.2m; however, the current year loss before tax is $4.4m with owners' equity close to zero and the forecast net cash outflow for the next 12 months is $5.2m. REQUIRED (a) Discuss the impact on the financial statements and of the audit of each issue, including an assessment of whether it is material. (4 marks) [Type Answer Here] (b) For each issue, design two (2) procedures that the audit team should undertake at the completion stage to try to resolve the issue. (4 marks) [Type Answer Here] (C) For each issue, describe the impact on the auditor's report if the issue remains unresolved. Justify your answer. (6 marks) [Type Answer Here]
