You are one of two partners at Diligence Chartered Accountants, a small, specialist audit firm based in
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Question:
Kristin and Josh only began audit work this year, Sally and Kel are very experienced and have been with Diligence for 8 years. IDE is a conglomerate, privately owned by twin brothers Barry and Neville Joffe. With a background in farming, the Joffe brothers have operated Mayfield Agricultural for more than twenty years before establishing IDE in 2016 to enable them to secure controlling stakes in sheet metal fabricator Small Town Steel and tourism operator Hockeys Resorts over the last 5 years.
Question 1. Barker DeYoung—analytical procedures (4%) Barker DeYoung sells high-quality, moderately priced clothing for women and girls in 9 large regional cities across Victoria (2), NSW (4), and Queensland (3). Each of the retail outlets is run by local managers but purchasing decisions for all stores are handled by Francis Spurgeon, the Chief Operating Officer (COO) who was appointed after IDE gained a controlling stake in Barker DeYoung. The industry has always been competitive but the drought (particularly in NSW and Queensland) and COVID-19 (particularly in Victoria) has placed added pressure on the business over the past 18 months, with Barker DeYoung heavily dependent on its summer range for a disproportionate share of its sales and profits. Francis Spurgeon is constantly monitoring cash flow and negotiating with suppliers about payment terms and with banks about interest rates and extensions of credit.
-identify the liquidity and solvency issues that Barker DeYoung faces. Explain the likely impact of each issue on the usual liquidity and solvency ratios.
-advise her about the audit risks for Barker DeYoung and suggest how she could take these into account in the audit plan.
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