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You have been assigned to the audit of Band Limited (Band), a large listed company with diverse operations. During the audit you become aware of
You have been assigned to the audit of Band Limited (Band), a large listed company with diverse operations. During the audit you become aware of the following:
- One of Band's controlled entities, ICE Pty Limited (ICE), is an ice-cream manufacturer. Part of ICE's agreement with its distributors is that ICE will supply a freezer complete with advertising signs for the distributor's use. These freezers are rented out to the distributors and recorded as fixed assets in the books of ICE. Most distributors are either service stations or corner shops.
- As with many other businesses, Band is finding it extremely difficult to recruit and retain skilled factory staff. Accordingly it has been decided that staff in the most difficult to retain award categories will be rewarded with annual bonuses. These are calculated using a relatively complex formula that takes into account employee's length of service, award rate, seniority and estimated contribution to profit.
Required
- Identify and explain two key audit assertions at risk in each of the situations above.
- Describe two substantive audit procedures you would perform in order to gather sufficient, appropriate audit evidence on each of the assertions identified in (i) above).
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