You are a senior accountant with Da Silva, Chang and Partners (DC), a four- partner firm...

 

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You are a senior accountant with Da Silva, Chang and Partners (DC), a four- partner firm operating in Perth. DC was formed 2 months ago, as a result of a merger between Da Silva Partners and Chang Partners. The only major audit client of the merged firm is Nebraska Ltd, which has 12 outdoor wear stores across Australia and a 30 June year-end. DC's accounting records show significant write-offs on the Nebraska audit over the past few years, mainly due to the performance of extensive testing. To increase audit efficiency and reduce write-offs, the partners have asked you to review the 2020 planning information and suggest methods of sampling that will reduce the level of work performed without compromising audit effectiveness. The partners have stressed that they still wish to comply fully with audit standards. The 2020 planning notes contain the following information. 1. Trade creditors are handled centrally in Perth. Major purchases of products are made through Perth, but each shop also orders about 20% of its stock. Each shop sends all authorised invoices to Perth for processing and payment on a weekly basis. An alphabetical list of all unpaid invoices is produced each month. There are no individually significant creditors. You need to select a sample of creditors to test for existence and a sample to test for completeness. 2. Fifty per cent of the stock is held in the main warehouse in Perth, which is subject to an annual stocktake and maintains perpetual inventory records. The remainder of the stock is held across the 12 branches, with each holding approximately similar quantities. The branches maintain periodic inventory records and are required to perform a stocktake and send the information to Perth every 6 months. You need to select a sample of stock to test for existence. 3. Although about 70% of total sales are paid for by cash or credit cards, 30% of sales are on account. The Perth head office deals with these accounts and the responsibility for debtor collection. An alphabetical debtors list is produced each month, showing the invoices making up each debtor, payment details and the outstanding balance. The report also shows the ageing details of each debtor. You need to select a sample of debtors to test for existence and a sample to test for valuation. Required Describe how you would select the above samples to ensure the audit is performed in an efficient and effective manner. You are a senior accountant with Da Silva, Chang and Partners (DC), a four- partner firm operating in Perth. DC was formed 2 months ago, as a result of a merger between Da Silva Partners and Chang Partners. The only major audit client of the merged firm is Nebraska Ltd, which has 12 outdoor wear stores across Australia and a 30 June year-end. DC's accounting records show significant write-offs on the Nebraska audit over the past few years, mainly due to the performance of extensive testing. To increase audit efficiency and reduce write-offs, the partners have asked you to review the 2020 planning information and suggest methods of sampling that will reduce the level of work performed without compromising audit effectiveness. The partners have stressed that they still wish to comply fully with audit standards. The 2020 planning notes contain the following information. 1. Trade creditors are handled centrally in Perth. Major purchases of products are made through Perth, but each shop also orders about 20% of its stock. Each shop sends all authorised invoices to Perth for processing and payment on a weekly basis. An alphabetical list of all unpaid invoices is produced each month. There are no individually significant creditors. You need to select a sample of creditors to test for existence and a sample to test for completeness. 2. Fifty per cent of the stock is held in the main warehouse in Perth, which is subject to an annual stocktake and maintains perpetual inventory records. The remainder of the stock is held across the 12 branches, with each holding approximately similar quantities. The branches maintain periodic inventory records and are required to perform a stocktake and send the information to Perth every 6 months. You need to select a sample of stock to test for existence. 3. Although about 70% of total sales are paid for by cash or credit cards, 30% of sales are on account. The Perth head office deals with these accounts and the responsibility for debtor collection. An alphabetical debtors list is produced each month, showing the invoices making up each debtor, payment details and the outstanding balance. The report also shows the ageing details of each debtor. You need to select a sample of debtors to test for existence and a sample to test for valuation. Required Describe how you would select the above samples to ensure the audit is performed in an efficient and effective manner.

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