Substantive procedures within 10 days – help

I am really sorry just please skip read. I now what to do, I just want to now whether I can do all the substantive procedure with the time limit 10 days. I know that it is my responsibility to take action before the audit report is issued. thus I just want to know full if comprehensive substantive procedures is possible in this time limit, as the control system is not operating effectively..

I now what to do. I just want to know whether it is possible to do work within time limit (10 days).

Wentworth Brewster limited is a company specialising in the manufacturer of sports equipment which it sells to specialist retailers and to private member gym clubs. It owns freehold premises that are larger than needed for its own requirements and so sub-lets surplus office accommodation to three other businesses. All its sales are on credit terms and all customers are credit-checked and authorised by Wentworth’s credit controller prior to an account being set up. The company keeps detailed records of stock quantities.

You have obtained a copy of a draft trial balance for the year ending 31 March 2011 that will be the basis from which the published accounts will be prepared. The following figures have been extracted from it:

£’000
Sales 8,000
Rent 120
Fixed Assets 3,800
Stock 1,600
Debtors 950
Net Profit before tax 820

It is now the May 1st and the final audit is substantially complete although if necessary further work can be undertaken up to the final deadline in 10 days time. You are the audit manager responsible for the audit and you are reviewing audit work to date. The audit senior in charge of the detailed audit procedures has brought to your attention the matters below asking your views on how material they may be and what further work if any needs to be done. Assume that earlier in the year an interim audit was completed and that the conclusion was that the company’s accounting systems were satisfactory and that internal controls were working effectively. The audit needs to be finalised by the May 10th.

Debtors
Confirmation requests were sent to a sample of 30 debtors requesting confirmation of the year end balance directly to the auditor. After sending second requests to non repliers and getting Wentworth’s Sales Ledger manager to telephone those who still hadn’t replied there were five debtors who had still not replied. One of these had a zero balance at the year end and three had balances between £5,000 and £20,000. No follow up work has been done on these accounts yet. The fifth account, Multi-gym ltd was a major customer with a year end balance of £145,000. The only follow up work done so far is a discussion the audit senior had with the credit controller yesterday about this account in which he was told Multi-gym was disputing a series of invoices amounting to £95,000 relating to a model of rowing machine which they had specially commissioned from Wentworth saying the machines kept jamming and couldn’t be used.

Claim for damages
Last month one of Wentworth’s retail customers was successfully sued by a member of the public who had bought a home exercise bike from them. The basis of the claim was that the assembly instructions were vague such that it was possible to misinterpret them and attach the pedals in such a way that they came off above a certain speed causing a person to fall off and injure themselves. The retail customer in turn successfully sued you to recover the damages of £25,000 awarded to the claimant. All products were subsequently withdrawn from sale until corrected instructions could replace the faulty instructions. All your retail customers were asked to send a product recall letter to customers known to have purchased this product, however no details were retained for an unknown number of customers who paid cash. In the last few weeks Wentworth have become aware of three similar claims against retail customers that have been initiated by members of the public who have suffered similar injuries. The audit senior has so far assembled these facts and confirmed that the first £25,000 has been correctly reflected in the draft accounts and that no other provision or contingency has been made.

Stock
During the audit of stock it was discovered that of the £1.6 million stock, £0.5 million was made up of stock items that were included in stock at the previous year end. The audit senior confirmed that during the observation of stock count these items appeared to be in good condition and continue to be recorded at full cost.

Rent
In addition to the matters above brought to your attention by the audit senior you ask what work has been done to confirm rental income. The audit senior replies that because it is small compared to sales income no work has been done specifically on rent although he did point out that at the interim audit detailed work was performed on controls over receipts and payments and found them to be very effective.

Required

You are required to act as the audit manager reviewing the work to date. You need to assess the extent of any audit problems or unresolved matters and identify what further work if any is needed (bearing in mind the time available) and possible implications for your audit report.

1. Address each of the four matters above identifying to what extent each might be an audit problem.
2. Suggest what further audit work if any you would recommend to resolve the problem or what necessary further information you would want to obtain.
In each case you should be specific about the steps to be taken e.g. what further tests should be performed (if any),
3. What actions you would recommend following any further work done or information obtained
-altering the accounts;
-qualifying the audit report; if so be specific on the type of qualification
-obtaining management assurances in the letter of representation;

You may make assumptions as necessary or suggest alternative actions depending on the outcome of further work or management reaction. There is no definitive answer.

Guidance and criteria

Write as a report by the audit manager to the audit partner responsible for the audit with the dual purposes of a) summarising the main problems and unresolved points indicating the potential impact on the financial statements and the materiality of each matter for audit purposes; b) setting out the further steps that could be taken in the time available as indicated in 2 above. There is no uniquely correct answer and the possible actions suggested above are not exhaustive.

Your report should consist of a brief introduction setting out the size and nature of the company, its overall financial position, a list of the audit problem areas (no need to go into detail at this stage) and the timetable for completion.
This should be followed by 4 separate sections clearly identified:

Debtors
Damages claims
Stock
Rent

Finally you should conclude on the possible implications for your audit report depending on the outcome of the further steps you may take and any assumptions you have made.

many thanks

awdal26