Chan & Co, an external auditing firm, has been selected to conduct an audit of AutoSpares Co for the fiscal year concluding on March 31, 2023: AUDITING AND ASSURANCE Assignment, Malaysia
|University||Asia Pacific University of Technology and Innovation (AUTI)|
|Subject||AUDITING AND ASSURANCE Assignment|
ANSWER ALL THE QUESTION
Chan & Co, an external auditing firm, has been selected to conduct an audit of AutoSpares Co for the fiscal year concluding on March 31, 2023. This case revolves around the process of planning the audit. The previous auditors issued an unmodified opinion last year, and access to prior audit documentation is available.
AutoSpares Co specializes in the production of high-quality automotive spare parts, supplying a diverse range of products to both automotive repair shops and retailers. The company’s product assortment comprises custom-designed spare parts, manufactured to order based on specific customer requirements.
This business is under the ownership of a family, with two sisters, Violet and Cassie, serving as joint Managing Directors. They actively participate in the day-to-day operations of the company. Although there isn’t a Finance Director, the financial controller is a qualified accountant.
AutoSpares follows a system of requiring customers to make a deposit and payment for their orders, with the transfer of risk and rewards occurring upon delivery. Additionally, the company offers a one-year guarantee for its spare parts. The company collaborates with external suppliers for the procurement of specific materials.
While these suppliers are expected to invoice on a monthly basis, there have been instances of delayed invoicing. Regarding raw material inventory, it is subject to an annual count, with costs assigned based on the prior year’s costs or the latest invoice costs. Although there are no significant works in progress this year, there is a substantial quantity of finished goods awaiting shipment. Violet Jones will assess their value, considering the order value.
In June 2022, a new accounting system was introduced. This system is custom-made and was developed by the Information Technology (IT) manager. The old and new systems were not operated concurrently due to concerns that this would be overly burdensome for the accounting team. Two months after the system transition, the IT manager left the company, and a new
manager has been recruited but is not scheduled to commence work until January.
Throughout the year, the directors each received substantial bonuses, which they have included within the ‘wages and salaries’ category. However, local legislation mandates separate disclosure of these bonuses. The company has been experiencing consistent sales growth and recently acquired an additional warehouse located adjacent to the existing facility to expand its manufacturing capacity.
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This new facility is currently undergoing renovations. The purchase of this new property during the year was financed through a bank loan with monthly repayments over a 12-year period. This loan contains covenants linked to profitability. AutoSpares has a practice of revaluing its land and buildings, and this year, the valuations for all land and buildings have been updated.
a) Explain the significance of effective audit planning, and outline the main steps involved in the audit planning process, particularly relevant to AutoSpares Co.
b) Use the information provided, identify the key financial statement assertions that are likely to be significant for the audit of AutoSpares Co.
c) Use the information provided, discuss the test of controls to be carried out particularly relevant to AutoSpares Co.
d) Explain the importance of communication and collaboration with AutoSpares’ management and the engagement team during the planning phase.
e) Explain the substantive procedures that the audit team should perform for the audit of AutoSpares Co.
f) Illustrate an audit working paper for:
i) Test of Effectiveness in sales
ii) Test of Details in sales
Note: You may design the audit working paper based on your innovative approach, following ISA 230, Audit Documentation.
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