Your firm has been the auditor of Katutura Products, a listed company, for a number of years. The engagement partner has asked you to describe the matters you would consider when planning the audit for the year ended on 31 January 2018. During a recent visit to the company, you obtained the following information. (a) The management accounts for the 10 months to 30 November 2017 show a revenue of N$130 million and profit before tax of N$4 million. Assume sales and profits accrue evenly throughout the year. In the year ended 31 January 2017, Katutura Products had sales of N$110 million and profit before tax of N $8 million. (b) The company installed anew computerised inventory control system which has operated from 1 June 2017. As the inventory control system records inventory movements and current inventory quantities, the company is proposing: (i) Touse the inventory quantities on the computer to value the inventory at the year-end (ii) | Not to carry outan inventory count at the year-end (c) You are aware there have been reliability problems with the company’s products, which have resulted in legal claims being brought against the company by customers, and customers refusing to pay for the products. (d) The sales increase in the 10 months to 30 November 2017 over the previous year has been achieved by attracting new customers and by offering extended credit. The new credit arrangements allow customers three months credit before their debt becomes overdue, rather than the one-month credit period allowed previously. Because of this change, trade receivables age has increased from 1.6 to 4.1 months. (e) The financial director and purchasing manager were dismissed on 15 August. A replacement-purchasing manager has been appointed but it is not expected that a new financial director will be appointed before the year-end of 31 January 2018. The chief accountant will be responsible for preparing the financial statements for audit. Required: (a) Describe the reasons why it is important that auditors should plan their audit (5) (b) Describe the matters you will consider in planning the audit and the further action you will take concerning the information you obtained during your recent visit to the company.
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