CHAPTER 13 AUDIT PROCEDURES: ESSENTIAL CONCEPTS 235 considered earns commission on every square metre of billboard space that it sells. Since the commission account is a high-risk balance, you decided to audit the balance yourself. You are busy with the substantive procedures of the commission account in the statement of comprehensive income for the year ended 31 October. Since Advertising Space does not have the necessary capital with which to build its own billboards, it has signed contracts with billboard companies (operators) in terms of which Advertising Space sells the billboard spaces (referred to henceforth as packages) on their behalf. Fees vary, depending on the nature of the billboards, their location, whether they are static or electronic, etc. Advertising Space, which has seen much growth of late, has several packages on its books. Commission on the packages is earned through selling them to clients from other operators. Once the sale of a package has gone through, a contract is concluded between the operator and the client, the commission being calculated as a percentage of the purchase price of the package. Clients are obligated to pay a deposit of 10% of the purchase price of the package on top of the commission to be paid to Advertising Space. The company uses a bank-clearing account system that records all monies deposited by customers and generates a pre-numbered receipt, a copy of which is sent to the client as proof of the receipt of payment. Advertising space then transfers a portion of the amount due to the account of the relevant operator. The commission owing to Advertising Space is paid into its current bank account by means of a cheque. No electronic payments, cash payments or transfers are made. For each transaction, a sales file is maintained, in which all details of that transaction are filed, including a copy of the contract, details of the terms and conditions and the terms of payment. REQUIRED Describe the substantive procedures you would perform in order to audit the commission account in the statement of comprehensive income for the year ended 31 October. [25] LEVEL 2

CHAPTER 13 AUDIT PROCEDURES: ESSENTIAL CONCEPIS 235 earns commission on every square metre of billboard space that it sells. Since the commission account is considered a high-risk balance, you decided to audit the balance yourself. You are busy with the substantive procedures of the commission account in the statement of comprehensive income for the year ended 31 October. Since Advertising Space does not have the necessary capital with which to build its own billboards, it has signed contracts with billboard companies (operators) in terms of which Advertising Space sells the billboard spaces (referred to henceforth as packages) on their behalf. Fees vary, depending on the nature of the billboards, their location, whether they are static or electronic, etc. Advertising Space, which has seen much growth of late, has several packages on its books. Commission on the packages is earned through selling them to clients from other operators. Once the sale of a package has gone through, a contract is concluded between the operator and the client, the commission being calculated as a percentage of the purchase price of the package. Clients are obligated to pay a deposit of 10% of the purchase price of the package on top of the commission to be paid to Advertising Space. The company uses a bank-clearing account system that records all monies deposited by customers and generates a pre-numbered receipt, a copy of which is sent to the client as proof of the receipt of payment. Advertising space then transfers a portion of the amount due to the account of the relevant operator. The commission owing to Advertising Space is paid into its current bank account by means of a cheque. No electronic payments, cash payments or transfers are made. For each transaction, a sales file is maintained, in which all details of that transaction are filed, including a copy of the contract, details of the terms and conditions and the terms of payment. REQUIRED Describe the substantive procedures you would perform in order to audit the commission account in the tatement of comprehensive income for the year ended 31 October. [25] [25 marks] As the audit manager, you are currently busy with the year-end external audit of Advertising Spacets Ltd (Advertising Space), a company selling advertising space on billboards along the highways of 50 Africa. The company was formed by an entrepreneur who wanted to create direct competition to 3 the belt advertising' CC, which he believed provided a poor service to its customers. Advertising s