You are engaged in the audit of the purchases figure in the financial statements of Powerbase plc,
Question:
You are engaged in the audit of the purchases figure in the financial statements of Powerbase plc, a company producing power tools. The company’s purchases and trade payables system is computerized, the good received note (GRN) prepared by stores forming the source documentation for updating the inventory records. The purchases invoices, on receipts from suppliers, are matched with purchase orders and GRNs in the accounting department, and these form the input to the purchases transactions and trade payables updating runs. The following interim financial results have recently been published in the financial press:
12 months to 31 Dec 2022 | 6 months to 30 Jun 2023 | |||
$m | $m | $m | $m | |
Sales | 95.2 | 50.4 | ||
Cost of Sales | 54.8 | 24.8 | ||
Gross Profit | 40.4 | 25.6 | ||
Administrative expenses | 22.3 | 10.1 | ||
Selling expenses | 10.5 | 32.8 | 4.7 | 14.8 |
Net profit before taxation | 7.6 | 10.8 |
You are the audit senior in charge of the interim audit of Powerbase plc and have satisfied yourself that the systems for recording purchase orders, inventory movements and updating purchases and trade payables are satisfactory. You asked Bill Chivers, a junior member of staff who has only recently joined your audit firm, to prepare substantive audit programmes in the purchases and trade payables area and you are reviewing the programmes (set out below) prepared by him.
Purchases: interim audit
- Cheque payments: Select a sample of cheque payments for purchases of raw materials and check as described below:
- Agree to invoices for goods received
- Agree to GRNs
- Check calculations and additions on invoices
- Purchases day book
- Select entries at random and examine invoices and credit notes for price, calculations and authorization, etc.
- Check postings of entries to trade payables ledger.
- Purchases ledger
- Select a sample of accounts and test check the entries into the books of prime entry, checking the additions and balances carried forward
- Enquire into all contra items
- Conclusions: Note any conclusions covering any weaknesses and errors discovered during the above tests for possible inclusion in a management letter
Required:
- 1.Discuss the extent to which the interim audit programmes should take account of the interim results of Powerbase plc.
- 2.Critically examine the audit programmes set out above, taking into account the implied assertions that management is making and the related audit objectives.
Intermediate Accounting
ISBN: 9781259722660
9th Edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas