Question

Vintage Time Ltd, is a company which sells antiques of all kinds. The company which is owned
and run by Rose Gareses, is a new client of your Audit firm and you have been placed in change
of the 28 February 2019 year-end audit. In gathering information about the business, you noted
the following.

The company obtains its stock in a number of ways.
Auctions are attended at which specific items and antique bales are purchased. When a bale is
purchased, the buyer bids a single price on a number of items and must take whatever is in the
“bales”. Each “bales” contains assorted items of varying values, some items being worthless.

Two buyers, who are experts in the field of antiques, travel widely, visiting second hand
furniture shops in different country villages and towns. These purchases are always made for
cash, often with minimal accompanying documentation.
Rose travels to Angola to purchase cheap antiques, generally these items sell successfully, but
there have been occasions when the items have had to be sold below cost.
Before being placed on the showroom floor, most items are repaired, renovated and cleaned in
the restoration department.
All items placed on the showroom floor have a price tag attached but this price is not necessarily
adhered to. Customers can negotiate prices and large discounts are given if the customer pays
cash, particularly for items which have been on the floor for long periods. Credit cards are
accepted and e wallet services.

At 28 February 2019, Vintage Time (Pty) Ltd will have a material debtors balance. The debtors
vary from large interior decorating companies to private individuals. No formal creditworthiness
checks are done on prospective customers and there is no credit limit set. To open an account a
customer must pay a negotiable cash deposit on the first purchase and must be interviewed by
Rose.
She explained it to you as follows, “People who buy antiques usually really want what they are
buying and are prepared to pay. They feel they must have it. Mark ups are high and if they take a
while to pay, so what?
Where a sale is made on account or is paid for by credit card, an invoice is written out, and if the
sale is for cash, a receipt is made out if the customer requests it.
Susan Mwaee, the bookkeeper, manually writes up a debtor’s ledger and a simple stock “ledger”.
The stock “ledger” contains a description of the item and its selling price. After the item is sold it
is crossed out in the stock “ledger” and the word “sold” inserted next to the deletion.
Vintage Time’s overdraft at First Bank Limited has climbed steadily over the year under audit,
and Rose has indicated that unless sales improve over the next few months, he will have to
retrench one or more of his craftsmen in the restoration department. A number of discussions
have been held with First Bank Limited, who have expressed concern about the financial
position, and are awaiting the audited financial statements.

REQUIRED:
Assess the audit risk at the financial statement level and assertion level relating to the audit of
Vintage (Pty) Ltd.(35Marks)

Answer 1

Facts of the Case: Vintage (Pty.) Ltd. is actually a trader in Antique materails around the market. Their client tele is individuals as well as interior designing companies. Vintage purchase its products from auction organsiated at specific place, restore the material by its repairing and garnishing and put ones price Tag . Different Payment facility both Cash and E payment are in there at Vintage. Discounting decision is differs from market as adopted by the Vintage. STock record is maintained for all items and strike off policy is followed for sold item. Overdraft limit is increasing day by day, need sto be balance with increase in sale, else facility need to be restructured.

Risk at fiancial Statement level is misstatement of Financial Statement from materilaity point of view. Auditors Assess the risk at two level Inherent risk and control risk. Inherent risk is the risk which will remain with in the process and control risk it is the activity or measures taken which will cause the risk to fail.

Assertions are actually representation by management. It is implied claim and representation by the management that the presentationof Fianancial statement regarding appripriatness of various elements of Fianancial Statements and disclosures.

Each line in Financial Statement contains all assertions. Assertiosn ar eUnderstanbility, Completness, Accuracy, Valuation, Proper Disclosure.

Here in the Above Case Vintage ( pty.) Ltd. where debtors are given discount if they make payment in cash, E Payment will lead to no attraction of discount. Accepted the fact of DIscount for the goods at floor level. Maintaing Stcok registre is not proper, degree of wrong valuation, Accuracy gets spoiled, completeness of data, etc all are at stake here.

Audit Risk as stated earlier that the inherent risk that built in every process or business designed here in this case, As chances of pilferage, chances of loss is very high in this business, Valuation is not as per standard or Book value, Basis of valuation is depends upon market and geographical area also.

Control risk: Control  in place to curb out the risk, simply point out the efficiency and effectiveness of control is achevied or not, here in the case of Vintage sam eis not acheived, because, Pilferage and loss of goods is ver high and mainataing Store record in unusal manner which never leads to real time data , Neither supports the valuation also. will put the Material information at stake.

Same process of billing is not followed for all types of customer, for cash sale cash receiptis made amd for E payment, Invocies are raised this lead to misstaement in sale srecords at higher  level and put the vintage at greater risk.  

Thus from Above, it can be concluded in Vintage company, both risk are not acceptable range and the level of assertion is also at stake.