Sussex LLP is the external auditor of Daysout Vouchers Online (DVO). DVO constructs and operates websites for
Question:
Sussex LLP is the external auditor of Daysout Vouchers Online (DVO). DVO constructs and
operates websites for customers who operate in the hospitality and experience sector. After
several years developing their software, DVO has seen four years of strong growth and
recently expanded their operations internationally.
You are the audit senior responsible for planning the audit of DVO for the year ended 30
November 2023. The audit manager has asked you to consider the following three areas of
audit risk:
(1) Non-current Assets
(2) Trade receivables
(3) Provisions
You have been provided with the following financial information:
Statement of profit or loss for the year ended 30 November (extract)
2023
(draft)
2022
(audited)
£’000 £’000
Revenue 29,770 25,460
Profit before tax 11,760 9,050
Statement of financial position as at 30 November (extract)
2023
(draft)
2022
(audited)
£’000 £’000
Non-Current Assets
Computer Hardware & Software 9,140 6,780
Current assets
Trade receivables 3,410 2,510
The audit manager has provided you with the following information:• DVO earns commission income on the experience vouchers sold through customers’websites. Commission income is agreed with each customer separately and is paid as a % ofvouchers sold, ranging from 4% to 8%.• DVO downloads a monthly report for each customer’s website, showing the numberof vouchers sold and the total value. This report is used to raise an invoice manually on DVO’sfinance system for the commission income due to DVO. 30 days credit is given from the invoicedate.• DVO’s largest client, Day Spas Ltd (DS), operates a chain of luxury spas in the Republicof Ireland and is invoiced in euro. DS is experiencing financial difficulties and has not paid aninvoice since August 2023. DS owed DVO £620,000 at 30 November 2023.• DVO’s managing director and sole shareholder, John Bruno, is planning to sell all ofhis shares in the company.• In September 2023 HMRC served DVO with a penalty of £957,000 to cover underpaidtaxes. John intends to appeal this decision at a tax tribunal, although DVO’s legal advisors haveadvised that DVO is unlikely to win the appeal. No provision has been recognised in respect ofthis penalty in the financial statements.• In October 2023 DVO upgraded its accounting software.• In November 2023 DVO, as lessee, served notice to vacate its head office. Under theterms of the lease, DVO is required to return the property to its original condition whenquitting. A provision of £610,000 for this cost, estimated by John’s son, a local estate agent,has been included in the financial statements.• The audit manager will be on annual leave for the next three weeks. She has askedyou to hold a meeting with the audit team juniors to brief them ahead of the audit.As you have worked on this client before and are therefore familiar with the business and itsstaff, you have also received an email from John directly (extracts below):‘I was really impressed by the quality of your work during last year’s audit. I could use someonelike you at DVO while I’m preparing to sell my shares. Keep this to yourself for now, but afterthe audit, we should have a conversation about you joining DVO.‘I’d also really appreciate you getting through the audit as quickly as possible this year. Timeis of the essence! One of the potential buyers wants the deal done yesterday but needs theaudited financial statements before they’ll commit.’Requirements;1. Identify and explain the legal, professional and ethical issues arising from John’s email,and state the actions that you should take(20 marks)2. State the purposes of holding a briefing meeting with the rest of the audit team andlist the matters that you would cover in the meeting(20 marks). 3. Justify why items (1), (2) and (3) above have been identified as key areas of audit risk.For each key area, describe the procedures that should be included in the audit planto address those risks.Present your answer addressing the following areas:• Non-current Assets• Trade receivables• Provisions(60 marks)(Total 100 marks)You should ensure that your answers are tailored to DVS Ltd and include examples from the question.
Auditing An International Approach
ISBN: 978-1259087462
7th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley