Your firm has recently been appointed as auditor of Candy Lane (Pty) Ltd. The previous auditor resigned
Question:
Your firm has recently been appointed as auditor of Candy Lane (Pty) Ltd. The previous auditor resigned from the engagement and emigrated to London. Your firm is a medium sized firm based in Cape Town with three other offices in Johannesburg, Durban and Port Elizabeth. You performed your preliminary audit procedures before accepting the engagement. The financial year-end date is 31 March 2024.
Extracts from relevant working papers follow.
CLIENT | CANDY LANE (Pty) Ltd | Year End | 31/03/2024 | W P Ref | |||
PREPARED BY | A. Apple | Date | 17/12/2023 | A 03 | |||
REVIEWED BY | C. Carrot | Date | 18/12/2023 | ||||
SUBJECT | Background Information regarding new client | ||||||
Candy Lane (Pty) Ltd, is a manufacturer and distributor of luxurious chocolates and sweets. The company sells mainly to middle - and upper - class individuals and has built up a good reputation in the market.
The company's head office and factory are situated in Stellenbosch. The factory manufactures the sweets and chocolates. The company also has a number of sales outlets in the major shopping malls throughout South Africa.
The company specializes in Belgian and Swiss chocolate. Other sweets are purchased locally, however the Belgian and Swiss chocolates are imported from neighboring countries or overseas.
The company has been in operation for the past ten years and sales have generally been good in the previous years. Sales during the current financial year, have however decreased substantially.
10 January 2024
Mr T. Smith, the company's managing director informed you that the audited annual financial statements must be available by no later than 18 April 2024 as the financial statements are urgently required by the company's bankers, NABSA. The bank is concerned about the size of the overdraft.
CLIENT | CANDY LANE (Pty) Ltd | Year End | 31/03/2024 | W P Ref | |||
PREPARED BY | A. Apple | Date | 11/02/2024 | F 07 | |||
REVIEWED BY | C. Carrot | Date | 15/02/2024 | ||||
SUBJECT | The information system - General Ledger | ||||||
We were not involved with the change-over to the new system which took place before our appointment. The conversion was handled in-house, and the new system was in operation within record time. Problems are being experienced with the accounting of certain transactions, and the accounting department is searching for and correcting errors in the accounts on a full-time basis.
- Describe the first condition for acceptance that the firm needed to consider when the audit firm was approached to accept the audit engagement, before establishing whether there is a common understanding of the terms of the audit.
- List the preliminary engagement procedures which should have been performed to gather information about the prospective client, before the audit engagement was accepted?
- List the matters which the engagement partner should have considered, prior to accepting the appointment as auditors of Candy Lane (Pty) Ltd, to comply with the Quality Control standards.