Harrier Motors deals in motor vehicles, sells spare parts, provides after-sales servicing and undertakes car body repairs.

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Harrier Motors deals in motor vehicles, sells spare parts, provides after-sales servicing and undertakes car body repairs. During the financial year to 30 June 2X11, the company expanded its operations from five to eight sites. Each site has a car showroom, service workshop and parts storage. In May 2X11, management appointed an experienced chartered certified accountant to set up an internal audit department. New cars are imported, on consignment, every three months from one supplier. Harrier pays the purchase price of the cars, plus 3 per cent, three months after taking delivery. Harrier does not return unsold cars, although it has a legal right to do so. Harrier offers 'trade-ins' (.e. part-exchange) on all sales of new and used cars. New car sales carry a three-year manufacturer's warranty and used cars carry a six-month guarantee. Many used cars are sold for cash. An extensive range of spare parts is held for which perpetual inventory records are kept. Storekeepers carry out continuous checking. Mr Joop, the sales executive, selects a car from each consignment to use for all his business and personal travelling until the next consignment is received. Such cars are sold at a discount as ex-demonstration models. Car servicing and body repairs are carried out in workshops by employed and subcontracted service engineers. Most jobs are started and finished in a day and are invoiced immediately on completion. In May 2005 Harrier purchased a brand name. "Uni-fit", which is now applied to the parts which it supplies. Manage- ment has not amortized this intangible asset as it believes its useful life to be indefinite.

Required: 

(a) Using the information provided, identify and explain the audit risks to be addressed when planning the final audit of Harrier Motors for the year ending 30 June 2X11.

(b) Identify and briefly explain the principal matters to be addressed in Harrier Motors' instructions for the conduct of its physical inventory count as at 30 June 2X11.

(c) Describe the audit work to be carried out in respect of the useful life of the 'Uni-fit' brand name as at 30 June 2X11.

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Auditing

ISBN: 9780134613116

10th Edition

Authors: Alan Millichamp, John Taylor

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