Question 27 ISAS 300 to 320 provide guidance on planning an audit of financial statements to ensure that the audit can b performed in an effective manner. You are the manager responsible for the audit of TK Supermarkets which has a number of stores selling household products to the general public, including furniture, electrical equipment, cooking equipment and carpets. The company has annual sales revenue of about fifteen million dollars. In previously year’s audits there have been problems with: Misappropriation of inventory by employees and customers Slow moving and damaged inventory which is worthless than cost Incomplete recording of sales when the customer pays in cash (there represent 55% of all sales) The company has a small Internal Audit Department, the staff of which visit branches and perform appropriate audit work at the head office. Required Describe the work you will carry out on the matters you will consider in planning the audit prior to the commencement of the detailed work, Including Consideration of the timetable for the audit. [25marks] Question 28 [20 marks] An Auditor’s Independence may be compromised by the provision of other non-audit services. Some of the Zimbabwean audit firms provide additional services to their audit clients such as Calculating the company’s income tax liability and the director’s personnel tax liability, and negotiating with tax authorities. Preparing the Company’s financial statements for audit, from the accounting records Advising on setting up systems of Internal Control. Required Consider for each of the services listed above: The effect on the auditor’s Independence of providing these services The procedures the audit firm should instigate to minimize the risk of providing them affecting their independence. [10 marks] b) ’Research carried out in one African country has shown that the fees charged to listed companies by audit firms for non audit work are, on average , about equal to the audit fee. It is alleged that: - Audit firms are charging how audit fees in order to obtain lucrative non-audit work - With large fees from non-audit, auditors will be relevant to qualify their audit report because of the risk of loosing both the audit and non-audit fees. - Auditors’ reluctance to qualify their audit report compromises their independence.
Question 27 ISAS 300 to 320 provide guidance on planning an audit of financial statements to ensure that the audit can b performed in an effective manner. You are the manager responsible for the audit of TK Supermarkets which has a number of stores selling household products to the general public, including furniture, electrical equipment, cooking equipment and carpets. The company has annual sales revenue of about fifteen million dollars. In previously year’s audits there have been problems with: Misappropriation of inventory by employees and customers Slow moving and damaged inventory which is worthless than cost Incomplete recording of sales when the customer pays in cash (there represent 55% of all sales) The company has a small Internal Audit Department, the staff of which visit branches and perform appropriate audit work at the head office. Required Describe the work you will carry out on the matters you will consider in planning the audit prior to the commencement of the detailed work, Including Consideration of the timetable for the audit. [25marks] Question 28 [20 marks] An Auditor’s Independence may be compromised by the provision of other non-audit services. Some of the Zimbabwean audit firms provide additional services to their audit clients such as Calculating the company’s income tax liability and the director’s personnel tax liability, and negotiating with tax authorities. Preparing the Company’s financial statements for audit, from the accounting records Advising on setting up systems of Internal Control. Required Consider for each of the services listed above: The effect on the auditor’s Independence of providing these services The procedures the audit firm should instigate to minimize the risk of providing them affecting their independence. [10 marks] b) ’Research carried out in one African country has shown that the fees charged to listed companies by audit firms for non audit work are, on average , about equal to the audit fee. It is alleged that: - Audit firms are charging how audit fees in order to obtain lucrative non-audit work - With large fees from non-audit, auditors will be relevant to qualify their audit report because of the risk of loosing both the audit and non-audit fees. - Auditors’ reluctance to qualify their audit report compromises their independence.
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