Auditing and Control in the Organisation - Jertsy Ltd - Sweet Sounds Ltd - Auditing Assessment Answer

Assessment Task:

Auditing and Control in the Organisation Assessment Answer  

Topic: Auditing and control in the organisation
 

Question 1 Jertsy Ltd owns a range of fashion clothing stores in Australian state capitals. Each store manager operates with a degree of autonomy with regard to the types and quantities of clothes that they buy and sell. Head office has established a standard mark-up on cost that local managers must use to arrive at selling prices. Store staff tend to be younger people who work part time and move on after a year or two; as a result, there a significant staff turnover. This high staff turnover does not affect trade and business is booming having tapped into youth fashion. Each store maintains its own accounting records and returns are sent to head office reporting purchases, sales and any sundry expenditure incurred locally. These monthly returns are consolidated by the accountant who prepares monthly management reports. The
recent success of the business has allowed senior management to adopt a strategy of growth by opening new stores, but they are worried about maintaining control as the business expands.

Required: Identify and explain the weaknesses in the existing system. Suggest improvements that should be included in any new system that senior management might choose to introduce.

Question 2 Your client, Sweet Sounds Ltd (SS), manufactures mini hi-fi systems. The company has a year-end of 30 June 2015. In December 2014, SS changed its manufacturing process to make its product more reliable. Because of this increased reliability, the company decided to increase the warranty on its products from 3
years to 5 years in relation to all sales made from 1 January 2015. From management's review of warranty claims relating to the new products, it was noted that claims were down by about 20% compared with the old product. Management made an estimate Of the provision for warranty Of $4 000 000 for 30 June 2015, up from $3 500 000 for the previous year.
Required: What are the main audit assertions that you should consider for this part of the audit for SS?

Describe the types of substantive procedures you would perform to cover these assertions. Discuss any special risks in auditing provisions for warranty (and in auditing SS's provision for warranty, in particular). 

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