Your firm has recently been appointed as auditors of Sydney Today Pty Ltd and you have been assigned as audit senior to the auditfor the year ended 30 June 2020. Your engagement partner and the assistantauditor conducted an interim audit visit to the client four months before thisyear end; however, this is the first time you have been on the audit. There were no major issues identified at the interim audit visit and the assistantinforms you that she thinks that the results of the interim audit are applicable for the full year.

Sydney Today produces a monthly giveaway magazine that isdistributed across Sydney. Articles are written by locals and largely consistof reports on upcoming community events. It is general practice for the chiefexecutive officer (CEO) to attempt to convince the local writers that theresulting publicity for their community event means that the article should be published without payment. Most of the time the CEO is successful, and only about half the magazines articles are paid for. The CEO accumulates articles, so thatthere is always a bank of articles available for the next edition.

Sydney Todays revenue consists of advertising bylocal businesses. The sales director and her staff actively pursue salesopportunities in each area. Advertising is mostly sold in three-edition orsix-edition bundles. Occasionally there are a few one-off monthly advertisements, especially from seasonal businesses.

The magazine offers a discount to advertisers if theyplace orders early, and the discount increases the earlier the order is placed(for example, a bigger discount is offered if an advertiser wants an advertisementin a magazine next year than if they want one in next months issue).Responsibility for invoicing the advertiser and recording the details lies with whichever member of the sales team signs the advertiser.

You make enquiries about the purchase of articles andphotographs for the magazine and have been provided with the followingresponses from the CEO:

-Writers submit articles to the magazine and the CEOevaluates each article and then decides which ones are suitable for publication.

-The CEO uses an order book specially allocatedto him to prepare orders for those writers that will be paid for their work. The orders aremailed out to the writers. The CEO drafts and sends out a letter of thanks tothe writers who were not selected.

-The CEO and the art director select thephotographs to be used. Notes are not kept of the result of their discussions.

-Photographers are freelancers, who are paid for every photo published. The CEO writes out the orders and they are mailed out to the photographers.

-Invoices are received from the writers andphotographers and matched to the orders. A rubber stamp is used by thebookkeeper to put the date of receipt on the invoice, as well as providing forthe checking of the invoice details for accuracy and classification (allocation to a general ledger account).

-Prices and calculations on the invoices arechecked by the bookkeeper and she puts her initials onto the relevant sectionsof the stamp.

-The invoices then go to the CEO for approval forpayment and the bookkeeper enters them into the accounts payable system.

- Electronic funds transfers to creditors takeplace on the due date for payment, which is usually 30 days after the end ofthe previous month (writers and photographers do not send out statements).

Required

Assume that you have decided that it isappropriate to test internal controls over the relevant transactions.

(a)Identify three tests of controls that you would use to obtain sufficient appropriate evidence regarding the purchases of articles and photographs. (15 marks)

(b) Indicate whether it is appropriate to follow the advice of your assistant auditor to accept the results of the interim audit as applicable for the whole year. Why/ Why not?