You are the audit manager in charge of the audit of Caro Ltd. The company's year-end is 31 December, and Caro has been a client for six years. The company purchases and resells products for the energy industry including valves, fittings, pumps etc. Clients vary in size from small operators to large companies. No manufacturing takes place in Caro. Information on the company's financial performance is available as follows: 2017 Forecast 2016 Actual $'000 $'000 Revenue 50,440 44,825 Cost of sales (40,918) (32,874) Gross profit 9522 11951 Administration costs (5194) (4,952) Distribution costs (2,500) (2,500) Net profit 1828 4499 Non-current assets (at net book value) 4200 4900 Current assets Inventory 250 1478 Receivables 6500 4552 Cash and bank 550 1790 Total assets 11500 12720 Capital and reserves Share capital 1000 1000 Accumulated profits 5500 6574 Total shareholders' funds 6500 7574 Non-current liabilities 1500 2258 Current liabilities 3500 2888 11500 12720 Other information  The industry that Caro trades in has seen moderate growth of 6% over the last year.  Non-current assets mainly relate to company premises for storing inventory. Eight delivery vehicles are owned with a net book value of $500,000.  One of the directors purchased a pump during the year.  Inventory is stored in ten different locations across the country, with your firm having offices close to seven of those locations.  A computerised inventory control system was introduced in August 2017. Inventory balances are now obtainable directly from the computer system. The client does not intend to count inventory at the year-end but rely instead on the computerised inventory control system. Required By reference to the information provided above, prepare the audit strategy for Caro for the year ending 31 December 2017. Including a thorough discussion, identification and analysis of Scope of audit, Timing, Materiality, Risk areas, Audit approach.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are the audit manager in charge of the audit of Caro Ltd. The company's year-end is 31 December, and Caro has been a client for six years. The company purchases and resells products for the energy industry including valves, fittings, pumps etc. Clients vary in size from small operators to large companies. No manufacturing takes place in Caro. Information on the company's financial performance is available as follows: 2017 Forecast 2016 Actual $'000 $'000 Revenue 50,440 44,825 Cost of sales (40,918) (32,874) Gross profit 9522 11951 Administration costs (5194) (4,952) Distribution costs (2,500) (2,500) Net profit 1828 4499 Non-current assets (at net book value) 4200 4900 Current assets Inventory 250 1478 Receivables 6500 4552 Cash and bank 550 1790 Total assets 11500 12720 Capital and reserves Share capital 1000 1000 Accumulated profits 5500 6574 Total shareholders' funds 6500 7574 Non-current liabilities 1500 2258 Current liabilities 3500 2888 11500 12720 Other information  The industry that Caro trades in has seen moderate growth of 6% over the last year.  Non-current assets mainly relate to company premises for storing inventory. Eight delivery vehicles are owned with a net book value of $500,000.  One of the directors purchased a pump during the year.  Inventory is stored in ten different locations across the country, with your firm having offices close to seven of those locations.  A computerised inventory control system was introduced in August 2017. Inventory balances are now obtainable directly from the computer system. The client does not intend to count inventory at the year-end but rely instead on the computerised inventory control system. Required By reference to the information provided above, prepare the audit strategy for Caro for the year ending 31 December 2017. Including a thorough discussion, identification and analysis of Scope of audit, Timing, Materiality, Risk areas, Audit approach.

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