Koftown Flowers operates 25 food supermarkets. The company’s year- end is 31st December 2019. The audit manager and partner recently attended a planning meeting with the finance director and have provided you with the planning notes below. You are the audit senior, and this is your first year on this audit. In order to familiarise yourself with Koftown Flowers, the audit manager has asked you to undertake some research in order to gain an understanding of Koftown Flowers, so that you are able to assist in the planning process. He has then asked that you identify relevant audit risks from the notes below and also consider how the team should respond to these risks. Koftown Flowers has spent GHS1.6 million in refurbishing all of its supermarkets; as part of this refurbishment programme their central warehouse has been extended and a smaller warehouse, which was only occasionally used, has been disposed of at a profit. In order to finance this refurbishment, a sum of GHS1.5 million was borrowed from the bank. This is due to be repaid over five years. The company will be performing a year-end inventory count at the central warehouse as well as at all 25 supermarkets on 31st December. Inventory is valued at selling price less an average profit margin as the finance director believes that this is a close approximation to cost. Prior to 2019, each of the supermarkets maintained their own financial records and submitted returns monthly to head office. During 2019 all accounting records have been centralised withinhead office. Therefore at the beginning of the year, each supermarket’s opening balances weretransferred into head office’s accounting records. The increased workload at head office has led tosome changes in the finance department and in November 2019 the financial controller left. His replacement will start in late December. Required: Using the information provided, describe FIVE audit risks and explain the auditor’s responseto each risk in planning the audit of Koftown Flowers.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Koftown Flowers operates 25 food supermarkets. The company’s year- end is 31st December 2019. The audit manager and partner recently attended a planning meeting with the finance director and have provided you with the planning notes below.
You are the audit senior, and this is your first year on this audit. In order to familiarise yourself with Koftown Flowers, the audit manager has asked you to undertake some research in order to gain an understanding of Koftown Flowers, so that you are able to assist in the planning process. He has then asked that you identify relevant audit risks from the notes below and also consider how the team should respond to these risks.
Koftown Flowers has spent GHS1.6 million in refurbishing all of its supermarkets; as part of this refurbishment programme their central warehouse has been extended and a smaller warehouse, which was only occasionally used, has been disposed of at a profit. In order to finance this refurbishment, a sum of GHS1.5 million was borrowed from the bank. This is due to be repaid over five years.
The company will be performing a year-end inventory count at the central warehouse as well as at all 25 supermarkets on 31st December. Inventory is valued at selling price less an average profit margin as the finance director believes that this is a close approximation to cost.
Prior to 2019, each of the supermarkets maintained their own financial records and submitted returns monthly to head office. During 2019 all accounting records have been centralised withinhead office. Therefore at the beginning of the year, each supermarket’s opening balances weretransferred into head office’s accounting records. The increased workload at head office has led tosome changes in the finance department and in November 2019 the financial controller left. His replacement will start in late December.
Required:
Using the information provided, describe FIVE audit risks and explain the auditor’s responseto each risk in planning the audit of Koftown Flowers.
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