Bargain Family Company Limited (BF) operates over 100 bargain shops in Hong Kong and the Mainland...

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Bargain Family Company Limited ("BF") operates over 100 bargain shops in Hong Kong and the Mainland China selling general household merchandise. BF has a strong team who are very experienced in this industry and knowledgeable on cost management and financial planning. The success of BF has relied heavily on this sophisticated team. BF uses a self-developed point-of-sales ("POS") system, which is called "CheckOut," in all bargain shops. The management believes that an efficient system can serve the customers better. CheckOut was tested in prior years' audits with no significant deficiency from the information technology aspect reported. At every day end, the cashier reconciles the cash receipts of the day with the sales records in CheckOut. Each bargain shop is required to bank in its surplus cash by 10pm every day. At every month end, the accountant performs bank reconciliation. He reconciles the daily deposit to the bank statement. The last year's audit results indicated that the relevant controls in place on revenue were operated effectively throughout the year. Required: (a) Suppose you are the audit manager who is responsible for the audit of BF's financial statements for the year ended 31 December 2020. Identify the control activities that are relevant to the audit of BF's revenue. (3 marks) (b) Propose FOUR other control activities around revenue that are relevant to an audit and commonly found in a retail shop with a relatively good control environment. (4 marks) (c) Propose audit procedures that you will perform in respect of the control activities identified in part (a). (4 marks) (d) A senior associate in the audit team considers that BF has good controls in place. He believes that validating the controls of the revenue cycle alone will provide sufficient and appropriate audit evidence for the revenue recognition. Advise whether you agree with his suggestion and give your reasons. (4 marks) (e) Some of the controls were validated in the last year audit with satisfactory results. Another senior associate in the audit team considers that for these controls, it is not necessary to perform validation tests again in this year audit. Advise whether you agree with his suggestion and give your reasons. (2 marks) Bargain Family Company Limited ("BF") operates over 100 bargain shops in Hong Kong and the Mainland China selling general household merchandise. BF has a strong team who are very experienced in this industry and knowledgeable on cost management and financial planning. The success of BF has relied heavily on this sophisticated team. BF uses a self-developed point-of-sales ("POS") system, which is called "CheckOut," in all bargain shops. The management believes that an efficient system can serve the customers better. CheckOut was tested in prior years' audits with no significant deficiency from the information technology aspect reported. At every day end, the cashier reconciles the cash receipts of the day with the sales records in CheckOut. Each bargain shop is required to bank in its surplus cash by 10pm every day. At every month end, the accountant performs bank reconciliation. He reconciles the daily deposit to the bank statement. The last year's audit results indicated that the relevant controls in place on revenue were operated effectively throughout the year. Required: (a) Suppose you are the audit manager who is responsible for the audit of BF's financial statements for the year ended 31 December 2020. Identify the control activities that are relevant to the audit of BF's revenue. (3 marks) (b) Propose FOUR other control activities around revenue that are relevant to an audit and commonly found in a retail shop with a relatively good control environment. (4 marks) (c) Propose audit procedures that you will perform in respect of the control activities identified in part (a). (4 marks) (d) A senior associate in the audit team considers that BF has good controls in place. He believes that validating the controls of the revenue cycle alone will provide sufficient and appropriate audit evidence for the revenue recognition. Advise whether you agree with his suggestion and give your reasons. (4 marks) (e) Some of the controls were validated in the last year audit with satisfactory results. Another senior associate in the audit team considers that for these controls, it is not necessary to perform validation tests again in this year audit. Advise whether you agree with his suggestion and give your reasons. (2 marks)

Answer rating: 100% (QA)

a Relevant control activities for the audit of BFs revenue include Daily reconciliation of cash rece... View the full answer