Carringbush Ltd is a large listed company which makes small electrical appliances. It is late April 20X5 and you are currently planning the 30 June 20X5 audit. The auditor's report is due to be signed on 20 August 20X5. During your planning, the following independent and material situations come to your attention: 

1. On 1 January 20X5, Carringbush signed a 3-year contract with PK Pty Ltd for the supply of cardboard packing boxes for its entire range of products. PK was selected as an exclusive supplier after an exhaustive tender process. One of PK's two directors is Ms. M, the wife of one of Carringbush's directors, Mr. M. Company minutes reveal that Mr. M did not take part in either the preparation of the tender documents or the selection of the successful tenderer. You note that details of this contract were omitted from the preliminary list of related party transactions supplied to you by the financial controller. 

2. Carringbush introduced a new system for the control of inventory on 1 January 20X4. The company performed extensive testing on this new system and management was convinced that it was operating effectively. This system has a utility that can produce many specialized reports for internal use by management. The system is a perpetual inventory system; management decided that a year-end stocktake would no longer be required and instead decided to perform monthly cyclical counts to ensure the system was functioning correctly. 

3. During the year ended 30 June 20X4, Carringbush changed several of its accounting policies. One of the policies changed was accounting for employee entitlements. The effect on the 30 June 20X4 financial statements was immaterial and so it was not disclosed, although it was expected to have a material effect in subsequent years. The financial controller is new to the company and appears to be unaware that recent changes have occurred in accounting policies. 

4. In 20X3, Carringbush introduced a "budget buster' range of small electrical appliances. The range was introduced to recapture the lower end of the appliance market, which Carringbush was slowly losing to cheaper imported products. Over the last 2 years, Carringbush began receiving reports that some budget-buster electric kettles had been giving their users small electric shocks. Some of these kettles are still covered by warranty. 

Required 

Discuss how your audit plan and audit approach would be affected as a result of each item.

Answer rating: 100% (QA)

1 There are a number of issues that will need to be addressed including how the auditing process will be affected After that the client will get an en... View the full answer