Sven Erasmus has had difficulties throughout the audit of Cantwell Catering. The company is a longstanding client

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Sven Erasmus has had difficulties throughout the audit of Cantwell Catering. The company is a longstanding client of the audit firm and there have been no problems in the past. However, four months into the start of the financial year the company’s computer systems failed. Subsequent diagnostic tests revealed that a particularly nasty virus had infected the computer system and corrupted all the processed data. The IT manager called in an IT specialist for advice as soon as the problem was discovered. The specialist installed a new computer system and additional security programs and the IT manager is confident that the problem will not recur.

The processed data had been backed-up and stored in a secure location, but when a restoration was attempted it was discovered that the virus also corrupted the backups. The Cantwell Catering staff tried to reconstruct the computer files based on paper records, but the reconstruction was incomplete because some paper documents had been inadvertently destroyed.

Sven is particularly concerned about sales and trade receivables. Cantwell Catering has many ‘onetime’

customers as well as several large accounts. The first four months of the year corresponded to the busiest time of the year for the company. Staff attended many corporate and private functions during this time and made numerous sales of catering equipment to wholesale and retail customers. Or, at least they think they did, and they believe that they collected all the accounts. Sven is not so sure. He thinks the chaos caused by the computer virus meant that deliveries were being made in a rush without the completion of the appropriate paperwork, and the attempts to collect accounts were ineffectual as customers took advantage of the situation to claim they had either already paid or had returned goods for credit. Other customers simply ‘fell off’ the system and were never billed.


Required]

(a) Discuss Sven’s audit report options and recommend the appropriate wording for the audit report.

(b) What matters would Sven include in the letter to those charged with governance at Cantwell Catering?

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Auditing A Practical Approach

ISBN: 9780730364573

3rd Edition

Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton

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