Need expert in auditing to help tqvm QUESTION 2 (20 marks) You are planning the

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Need expert in auditing to help tqvm

QUESTION 2 (20 marks) You are planning the audit of LM Ltd, a soft drink manufacturer with bottling plants throughout the world. Each country has its own bottling plant together with an accounting and administrative centre. Each country prepares financial data monthly and submits it to head office in Sydney. The financial data form each country has been shown to be very accurate in previous audits. You are planning the June 2016 audit and it is now April 2016 You tasks: For each of the following facts, state what would be the impact on your overall audit plan for 2016. (In your answer, you should consider the possible inherent risks and the financial statement items and assertions that your audit testing should focus on) i As a result of budget cuts and reduced employee numbers in some countries, management has expressed some concern about recent financial data it has been receiving. ii) The labour cost has been increasing quickly in some countries with the result that ) The US bottling plant has entered into a two-year contract with a local sugar supplier iv) A new·low-carb, soft drink accounts for over 20% of total revenues. At a recent proposals are being put forward to reduce the number of plantsacross the world. to maintain a supply of quality sugar at predetermined prices. sporting event in the United Kingdom, there were large numbers of customers taken to hospital after having an allergic reaction to the drink. This has been traced to a new ingredient used worldwide and the product has been temporarily taken off the market. v) Market analysts had commented that the company underachieved these few years

Explanation / Answer

1.Budgets prepared initially need to be evaluated along with the Headcount Movement of Particular Region , Budget should be compared with Actual Figures and major differences should be tested in detail.Sales & Purchases can be testd by creating expectation as per market demand and past trends , with comparing industry standards expenses and income can be traced

All Vouchers along with supporting evidence should be verified so as to make sure transaction is genuine , Ex; For Fixed asset if we are taking ownership as an assertion for testing then we should verify sale deed whether it is been made properly at registrar. For all Balances Confirmation should be rolled out i.e Debtor , Creditor , Loans & Advances etc

Bank Confirmation shall be obtained so as to make sure no fraudlent reccording is made by staff and tax calculation shall be verified as per Tax laws of Particular country

ii. For Labour Cost - Headcount Movement shall be obtained and shall be seen whether there is a major headcount movement has been made or not , and if so reasons for same and Auditor should ensure that plant is not overstaffed , Salary increments shall be seen whether there is exceptional increase in increments of salary.and is so then same shall be justified Actuary Valuation shall be made for Long term Benefits of Employees and ensure true & fair recording is made by employees.

If Labour cost is major concern then auditor should find reasons and should provide recomendations so as to reduce its cost and if possible can make plant profitable , But if Plant is not effective then auditor can state reasons and can approve for closing plant as it is evident its non profit generating unit Auditor must ensure if it is closing plant then is it affecting going concern of Company and Financial Statments shall be prepared accordingly.

iii.Auditor should ensure that transactions happening should be at arm length price and should be in well being of the company , Here auditor should verify Prices in US and at what level it is changing and what are the odds that it will decrease and auditor can verify prices at which they could have got from other country and can compare price margin with them and auditor shall verify contract whether all the conditions have been fulfilled and company is not in non compliant position

iv. Auditor must ensure whether it has significant impact on revenues of Company in future because it can lead to degrade in goodwill of the company and might result in loss for the company so auditor shall evaluate Going concern of the company and company should verify they have any liabilty in regard to loss made to people , company shall make provision in case of any legal claims or record it as a contigent Liability and what will be the subsequent cost for removing existing inventory and further cost that has to made

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