Astra and Company LLP (Astra) is a reputable accountancy firm with a growing auditing practice based in
Question:
Astra and Company LLP (“Astra”) is a reputable accountancy firm with a growing auditing practice based in London. You have recently been promoted to Junior Partner and you manage a small portfolio of audit clients alongside one of Astra’s statutory audit partners.
Astra is the external auditor of Coffee 2 Go Limited (“C2G”), an established coffee roasting and wholesaling company based in London. C2G was established ten years ago and has quickly grown to match the exponential increase in the number of independent coffee shops in London and Greater London.
C2G buys its green coffee beans from international coffee bean traders and roasts the beans according to the needs of its customers. C2G supplies roasted coffee beans to small one-unit coffee shops and medium/large-sized chains of coffee shops.
C2G is preparing for an Initial Public Offering (“IPO”).
The impact of the recent pandemic has caused several of C2G’s customers to go out of business and as a result, C2G has written off the related trade debtors. The ages of many of C2G’s current trade debtor balances are well over its normal 30-day payment terms.
Astra was appointed auditor of C2G at its most recent Annual General Meeting, so this is the first time that your firm has audited the financial statements. The original auditor had resigned due to a disagreement over the provisions for bad and doubtful debts and inventory obsolescence.
C2G’s most recent fiscal
year ended on 31 December 2021 and your firm is about to begin the final audit. The interim audit was completed in a three-week visit in September 2021 during which the tests of controls were carried out with no errors.
C2G’s physical inventory check was held on 31 December 2021. Astra staff attended this inventory check, and their key findings were as follows: (see image attached)
C2G has provided you with the draft financial statements for the year ended 31 December 2021, together with the audited financial statements for the previous year. An extract from the balance sheet (statement of financial position) is set out below: (see image attached)
Required
(a) From the information given, identify and briefly explain areas of particular audit risk in C2G’s 2021 financial statements.
Marketing The Core
ISBN: 978-0078028922
5th edition
Authors: Roger A. Kerin, Steven W. Hartley, William Rudelius