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Ash Trading Co (Ash)
Ash is a new client of Chestnut & Co, its year end was 31 January 2015 and the firm was only appointed auditors in February 2015, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing. The inventory count at Ash’s warehouse was undertaken on 31 January 2015 and was overseen by the company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year end. The draft financial statements show a profit before tax of $2•4 million, revenue of $10•1 million and inventory of $510,000.
Required : Recommend procedures audit team should undertake to try to resolve the issue
Sir here can we write the procedures that
a) Discuss with management why previous auditors were suddenly unable to perform the audit
(b)Inspect supporting documents like internal audit report
(c)Obtain expert advice as to the valuation of inventory.
Would these 3 procedures be correct?You have not reported the requirement accurately: in the exam you were asked for ONE only. You don’t get more marks for giving three, it wastes your time and irritates the marker.
The issue is that the inventory count was not attended so the quantity of inventory has not been verified. (a) and (c) do nothing to resolve that. (b) is covered in the model answer in the detail required.
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