Company A are a company who operate a construction business based in Wales. The company are currently having an external
Posted: Sat May 07, 2022 7:44 pm
Company A are a company who operate a construction business
based in Wales. The company are currently having an external audit
and you are at the planning stage of the audit. This is the first
year that your firm have audited company A. Company A are a family
run business which has grown to become a successful business with a
turnover of over £12,000,000. The management of the business are
mostly family members and as such have total control over the
internal control systems including full access to all the financial
systems. Recently there has been a large turnover of staff in the
accounting department of Company A which has caused some
difficulties in completing work accurately. Company A have
struggled to find appropriately trained staff resulting in existing
staff being forced to work overtime. Staff are naturally unhappy
about this situation especially as they have also become aware of
incentives being paid to certain members of management for
successful completion of work to deadlines, for example the payroll
and VAT submissions to HMRC. Due to lack of storage Company A have
recently made arrangements to store a large amount of inventory at
a third-party location. Company A use a well-known accounting
package for all financial areas except for the payroll department,
which is processed using a different, more complex system. To date,
the payroll system has been run by one person, Wesley, who is very
experienced and has complete charge over the payroll since the
company started trading. The managing director of Company A told
you “We are very lucky to have Wesley running our payroll. This is
an important area not only because of the regulatory requirements
but also because of the large sums of money involved. As a company
we are very proud to have someone we can trust 100%”. The finance
director of Company A has indicated that one of their major
customers may be going into administration. Sales to this customer
account for 30% of the company’s overall turnover.
Required: a) Using the scenario above, Identify and discuss FOUR
audit risks that should be taken into consideration when planning
the audit of Company A. Provide an audit response for each risk
identified. (8 marks)
based in Wales. The company are currently having an external audit
and you are at the planning stage of the audit. This is the first
year that your firm have audited company A. Company A are a family
run business which has grown to become a successful business with a
turnover of over £12,000,000. The management of the business are
mostly family members and as such have total control over the
internal control systems including full access to all the financial
systems. Recently there has been a large turnover of staff in the
accounting department of Company A which has caused some
difficulties in completing work accurately. Company A have
struggled to find appropriately trained staff resulting in existing
staff being forced to work overtime. Staff are naturally unhappy
about this situation especially as they have also become aware of
incentives being paid to certain members of management for
successful completion of work to deadlines, for example the payroll
and VAT submissions to HMRC. Due to lack of storage Company A have
recently made arrangements to store a large amount of inventory at
a third-party location. Company A use a well-known accounting
package for all financial areas except for the payroll department,
which is processed using a different, more complex system. To date,
the payroll system has been run by one person, Wesley, who is very
experienced and has complete charge over the payroll since the
company started trading. The managing director of Company A told
you “We are very lucky to have Wesley running our payroll. This is
an important area not only because of the regulatory requirements
but also because of the large sums of money involved. As a company
we are very proud to have someone we can trust 100%”. The finance
director of Company A has indicated that one of their major
customers may be going into administration. Sales to this customer
account for 30% of the company’s overall turnover.
Required: a) Using the scenario above, Identify and discuss FOUR
audit risks that should be taken into consideration when planning
the audit of Company A. Provide an audit response for each risk
identified. (8 marks)