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Audit Plan and Sampling Methods

Westinghome Ltd

Westinghome Ltd is a large listed company which specialises in the manufacture of whitegoods and other electrical appliances. It is late April 2021 and you are currently planning the 30 June 2021 audit_ The auditor's report is due to be signed on 20 July 2021. During your planning, the following independent and material situations come to your attention.

1.On 1 January 2021. Westinghome signed a 3-year contract with KP Pty Ltd for the supply of cardboard packing boxes for its entire range of products. KP was selected as an exclusive supplier after an exhaustive tender process. One of KP's two directors is Ms M, the wife of one of Westinghome's directors, Mr M. Company minutes reveal that Mr M did not take part in either the preparation of the tender documents or the selection of the successful tenderer. You note that details of this contract were omitted from the preliminary list of related party transactions supplied to you by the financial controller.

2.Westinghome introduced a new system for the control of inventory on 1 january 2020. The company performed extensive testing on this new system and management was convinced that it was operating effectively. This system has a utility that can produce many spe-cialised reports for internal use by management. The system is a perpetual inventory system; management decided that a year-end would no longer be required and instead decided to perform monthly cyclical counts to ensure the system was functioning correctly.

3.During the year ended 30 June 2020, Westinghome changed several of its accounting policies. One of the policies changed was accounting for employee entitlements. The effect on the 30 June 2020 financial statements was immaterial and so it was not disclosed, although it was expected to have a material effect in subsequent years. The financial controller is new to the company and appears to be unaware that recent changes have occurred in accounting policies.

4.In 2019, Westinghome introduced a 'budget buster' range of small electrical appliances. The range was introduced to recapture the lower end of the appliance market, which Westinghome was slowly losing to cheaper imported products. Over the last 2 years, Westinghome began receiving reports that some budget buster electric kettles had been giving their users small electric shocks. Some of these kettles are still covered by warranty.

(a) Discuss how your audit plan and audit approach would be affected as a result of each item.


(li) Where possible, relate the effects noted in (a) to specific. financial statement assertions.

You are a senior accountant with Da Silva, Chang and Partners (DC), a four-partner firm operating in Perth. DC was formed 2 months ago, as a result of a merger between Da Silva Partners and Chang Partners. The only major audit client of the merged firm is Nebraska Ltd, which has 12 outdoor wear stores across Australia and a 30 June year-end.

DC's accounting records show significant write-offs on the Nebraska audit over the past few years, mainly due to the performance of extensive testing. To increase audit efficiency and reduce write-offs, the partners have asked you to review the 2020 planning information and suggest methods of sampling that will reduce the level of work performed without compromising audit effectiveness. The partners have stressed that they still wish to comply fully with audit standards.

1.Trade creditors are handled centra.11y in Perth. Major purchases of products are made through Perth, but each shop also orders about 20% of its stock. Each shop sends all authorised invoices to Perth for processing and payment on a weekly basis. An alphabetical list of all unpaid invoices is produced each month. There are no individually significant creditors. You need to select a sample of creditors  to test for existence and a sample to test for completeness.

2.Fifty per cent of the stock is held in the main warehouse in Perth, which is subject to an annual stocktake and maintains perpetual inventory records. The remainder of the stock is held across the 12 branches, with each holding approximately similar quantities. The branches maintain periodic inventory records and are required to perform a stocktake and send the information to Perth every 6 months. You need to select a sample of stock to test for existence.

3.Although about 70% of total sales are paid for by cash or credit cards, 30% of sales are on account. The Perth head office deals with these accounts and the responsibility for debtor collection. An alphabetical debtors list is produced each month, showing the invoices making up each debtor, payment details and the outstanding balance. The report also shows the ageing details of each debtor. You need to select a sample of debtors to test for existence and a sample to test for valuation.

Describe how you would select the above samples to ensure the audit is performed in an efficient and effective manner.

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