问题详情

Introductionandclientbackground
YouareanauditseniorinStapleandCoandyouarecommencingtheplanningoftheauditofSmoothbrushPaintsCofortheyearending31August2010.
SmoothbrushPaintsCoisapaintmanufacturerandhasbeentradingforover50years,itoperatesfromonecentralsite,whichincludestheproductionfacility,warehouseandadministrationffices.
Smoothbrushsellsallofitsgoodstolargehomeimprovementstores,with60%beingtoonelargechainstoreHomewares.ThecompanyhasaoneyearcontracttobethesolesupplierofpainttoHomewares.Itsecuredthecontractthroughsignificantlyreducingpricesandofferingafour-monthcreditperiod,thecompany’snormalcreditperiodisonemonth.
Goodsin/purchases
Inrecentyears,SmoothbrushhasreducedthelevelofgoodsdirectlymanufacturedandinsteadstartedtoimportpaintfromSouthAsia.Approximately60%isimportedand40%manufactured.Withintheproductionfacilityisalargeamountofoldplantandequipmentthatisnowredundantandhasminimalscrapvalue.Purchaseordersforoverseaspaintaremadesixmonthsinadvanceandgoodscanbeintransitforuptotwomonths.Smoothbrushaccountsfortheinventorywhenitreceivesthegoods.
Toavoidthedisruptionofayearendinventorycount,Smoothbrushhasthisyearintroducedacontinuous/perpetualinventorycountingsystem.Thewarehousehasbeendividedinto12areasandtheseareeachtobecountedonceovertheyear.Thecountingteamincludesamemberoftheinternalauditdepartmentandawarehousestaffmember.Thefollowingprocedureshavebeenadopted;
1.Theteamprintstheinventoryquantitiesanddescriptionsfromthesystemandtheserecordsarethencomparedtotheinventoryphysicallypresent.
2.Anydiscrepanciesinrelationtoquantitiesarenotedontheinventorysheets,includinganyitemsnotlistedonthesheetsbutpresentinthewarehousearea.
3.Anydamagedorolditemsarenotedandtheyareremovedfromtheinventorysheets.
4.Thesheetsarethenpassedtothefinancedepartmentforadjustmentstobemadetotherecordswhenthecounthasfinished.
5.Duringthecountstherewillcontinuetobeinventorymovementswithgoodsarrivingandleavingthewarehouse.
Attheyearenditisproposedthattheinventorywillbebasedontheunderlyingrecords.TraditionallySmoothbrushhasmaintainedaninventoryprovisionbasedon1%oftheinventoryvalue,butmanagementfeelsthatasinventoryisbeingreviewedmoreregularlyitnolongerneedsthisprovision.
FinanceDirector
InMay2010Smoothbrushhadadisputewithitsfinancedirector(FD)andheimmediatelyleftthecompany.Thecompanyhastemporarilyaskedthefinancialcontrollertotakeovertherolewhiletheyrecruitapermanentreplacement.TheoldFDhasnotifiedSmoothbrushthatheintendstosueforunfairdismissal.Thecompanyisnotproposingtomakeanyprovisionordisclosuresforthis,astheyareconfidenttheclaimhasnomerit.
Required:
(a)IdentifyandexplaintheauditrisksidentifiedattheplanningstageoftheauditofSmoothbrushPaintsCo.(10marks)
(b)Discusstheimportanceofassessingrisksattheplanningstageofanaudit.(4marks)
(c)Listandexplainsuitablecontrolsthatshouldoperateoverthecontinuous/perpetualinventorycountingsystem,toensurethecompletenessandaccuracyoftheexistinginventoryrecordsatSmoothbrushPaintsCo.(10marks)
(d)DescribeTHREEsubstantiveprocedurestheauditorofSmoothbrushPaintsCoshouldperform.attheyearendinconfirmingeachofthefollowing:
(i)Thevaluationofinventory;(3marks)
(ii)Thecompletenessofprovisionsorcontingentliabilities.(3marks)
请帮忙给出正确答案和分析，谢谢！