During the “understanding the entity and its environment” stage of planning for the audit of Novex...

During the “understanding the entity and its environment” stage of planning for the audit of Novex (Pty) Ltd you obtain the following information, inter alia, about the company.
1. The company imports large quantities of inventory.
2. Some of the products which Novex (Pty) Ltd sells have expiry dates, after which they are not useable.
3. The company sells, inter alia, chemicals.
4. Inventory is stored in several warehouses around Namibia.
5. 40% of the company’s sales are for cash.
6. During the year under audit, credit terms and policies were made less stringent to boost sales.
7. The company’s manufacturing division leases some of its assets.
8. Obtaining spares for some of the manufacturing assets which the company owns, is extremely difficult which has resulted in a number of machines standing idle.
9. The work force at Novex (Pty) Ltd fluctuates quite significantly from month to month. Casual labour is brought in frequently for short periods.
YOU ARE REQUIRED TO identify the financial statement assertions which will be affected by the above information. Provide reasons.

Expert Solution

This will impact existence, as auditor have to check whether inventory exist as mentioned in balance sheet
Presenatation and disclosure of the such products and their value along with the quantity left which would expire in near days
Accuracy and valuation of chemicals to see that chemicals actually sold are in correct numbers
Valuation and existence, inventory recorded to be stored is valued correctly and exist
Completeness and accuracy of the sales account, it is to be verified that sales transactions are complete and accurately recorded as to the amount of cash sales and credit sales
Disclosures are made of the changes in the credit terms
Company have rights and obligations as to the lease terms and they are adhered along with the disclosure of the lease terms in the financial statements
Issue of machines standing idle is appropriately discloses.
Existence or occurence of the problem of fluctation exist needs to be verified.

ekkarill92 answered 2 years ago

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