partnership to a PLC. Given the soaring demand for the building materials, the Crafts PLC requires high levels of inventory. This has led the company to request an increase in its bank overdraft facility. The company’s financial analysts and bankers have suggested that an external audit is performed on Crafts PLC’s financial statements for the year ending 31st December 2021. The company's bankers have requested that an audit is undertaken on the financial
Your audit firm has recently accepted a new client, Crafts PLC, a manufacturer of
building materials (cement, mortar and bricks). The company has experienced rapid
growth in the last three years. The company’s financial year ends on 31st December.
Crafts PLC has yet to have its financial statements audited since the company has
recently changed from a limited liability
Given the soaring demand for the building materials, the Crafts PLC requires high
levels of inventory. This has led the company to request an increase in its bank
overdraft facility. The company’s financial analysts and bankers have suggested that
an external audit is performed on Crafts PLC’s financial statements for the year ending
31st December 2021. The company's bankers have requested that an audit is
undertaken on the financial
On 31st December, Crafts PLC’s inventory includes raw materials, work-in-progress
and finished goods. Crafts PLC does not perform perpetual inventory counting.
However, it does conduct a full inventory count but does intend to perform a full
inventory count on 31st December. Crafts PLC employs a standard costing system to
calculate work in progress and finished goods.
Required
(a) Carefully examine the objectives of the audit planning stage, with emphasis on
areas that will aid the auditor in gaining a comprehensive knowledge and
understanding of the business?
(b) Discuss the audit risks faced by Crafts PLC. How will those risks be addressed?
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