(a) Comment on the matters that you should consider specific to initial audit engagement when developing the audit strategy for High-Tec Limited (b) Evaluate the audit risks to be considered in planning the audit of High-Tec Limited
You are a manager in the audit department of Dinpa & Co., a firm of Chartered Certified Accountants, and you have just been assigned to the audit of High-Tec Limited, a new audit client of your firm, with a financial year ended 31st May 2015. High-Tec Limited, has just been listed on the Ghana Stock Exchange (GSE). It is an e-commerce facilitator and has grown rapidly in the last few years. High-Tec Limited was formed ten years ago by Mr. Boss Tinkoli, a graduate in e-commerce from the University of Professional Studies, Accra.
The company designs, develops software for e-commerce with high security features which have won industry awards. In the last two years the company invested GHS400m in creating new software to appeal to a large number of multinational companies and sales are now made in over 10 countries. The software is developed in this country, but the manufacture of the security features, for the obvious reason, takes place overseas.
The software is largely sold through retail outlets, but approximately 30% of High- Tec Limited’s revenue is generated through sales made on the company’s website.
In some countries, High-Tec Limited’s products are distributed under a franchise agreement which give the franchise holder the exclusive right to sell the products in that country. The cost of each franchise to the distributor depends on the estimated sales in the country to which it relates, and the franchise last for an average of five years.
The income which High-Tec Limited receives from the sale of a franchise is deferred over the period of the franchise. At 31st May 2015, the total amount of deferred income recognized in the Co.’s
Required:
(a) Comment on the matters that you should consider specific to initial audit engagement when developing the audit strategy for High-Tec Limited
(b) Evaluate the audit risks to be considered in planning the audit of High-Tec Limited
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