Thomas is the engagement partner on the audit of Tidmouth Enterprises, a listed company selling small kitchen appliances. The appliances are made in China and imported and sold to retail outlets by Tidmouth Enterprises. Tidmouth Enterprises has a small internal audit team that was established after the business had suffered from accusations of ‘channel stuffing’ five years ago. The internal audit team reports directly to the audit committee, which has four independent directors.

After the problems of five years ago the entire senior management team changed and the company became extremely committed to promoting good corporate ethics. Remuneration packages for all senior staff include incentive payments for achieving targets based on governance indicators, staff satisfaction scores, peer reviews and performance appraisals, as well as sales targets.

Thomas has audited Tidmouth Enterprises for four years and has been impressed throughout this time with both the quality of the company’s accounts and the internal audit team, which is highly qualified and effective.

Required

Explain what approach Thomas should take to the audit of Tidmouth Enterprises’ income statement accounts.