You are an audit manager of Elle and Emm, Certified Accountants you are carrying out the planning of the audit of Selfones Co, a listed , and a high street retailer of mobile phones, for the ending 30 November, 2013. The notes from your planning meeting with Pami Desai, the financial director, include the following:

1. One of Sellfones’ main competitors ceased trading during the year due to the increasing pressure on the margins in the industry and competition from online retailers.
2. A new management structure has been implemented, with 10 new divisional managers. Appointed during the year. The high street shops gave been allocated to these managers, with approximately 20 branch managers reporting to each divisional manager. The divisional managers. Gave been set challenging financial targets for their areas with substantial bonuses offered them as incentivize then to meet the targets. The board of directors have also decided to cut the amount that will be paid to shop staff as a Christmas bonus.
3. In response to recommendations in the prior year’s report to management, a new inventory system has been implemented. There were some problems in its first months of operation but a report has been submitted to the board by Steven MacLennan, the chief accountant, confirming that the problems gave been resolved and that the information produced by the system will be accurate. Pami commented that the chief accountant has had to work very long hours to deal with this new system, often working at weekends and even refusing to take any leave until the system was running properly
4. The company is planning to raise new capital through a share issue after the year-end in order to finance expansion of the business into other countries in Europe. As a result, Pami has requested that the auditor’s report is signed off by 28 February, 2014 (six weeks earlier than in previous years).
5. The latest board summary of results includes:

	9 months to 31 Aug., 2013 (unaudited)	Year to 30 Nov., 2012 (audited)
	$m	$m
Revenue	320	280
Cost of Sales	215	199
Gross profit	105	81
Operational expenses	(89)	(70)
Exceptional profit on sale of properties	30	___
Profit before tax	46	11

6. Several shop properties owned by the company were sold under sale or leaseback arrangements.

Required

Identify and explain any fraud risk factors that the audit team should consider when planning the audit of Sellfones Co.

Answer rating: 100% (QA)

Auditors do not make legal conclusions about whether fraud has occurred since fraud is a broad legal notion The auditors interest on the other hand is focused on acts that result in a major misreprese... View the full answer