Question

Your firm has been appointed for the first time to carry out the audit of Teejan Enterprises for the
year ending December 31, 2019. The entity is engaged in trading of office furnitures and operates
from 6 branches in various cities. Teejan Enterprises has been in operation for nearly 8 years and was
far bigger now than when it first started by its original owners. Teejan was originally owned by two
people who became husband and wife. As the years went by, they allowed three more friends to co-
own the business and the business soon become the size it is now. However, as the enterprise
becomes bigger, owners found it difficult to manage some basic areas of the business particularly the
control aspect. They simply don’t have the ability and could not find the right manager to handle all
six branches. As part of your initial assessment, you noticed significant adjustments in their
inventories. You communicated with their previous auditors and they revealed that those adjustments
in inventories were due to the un-reconciled balance of physical count of inventories. Moreover, you
also learned that two of the 6 branches will be closing down the following year. Recently, the
company directors are having closed-door meetings with a major competitor about merger and
acquisition. They are considering selling Teejan to a much bigger company. The management
expects the auditor to report on weaknesses in design and implementation of internal controls as well
as give some consultation advise on the management aspect on top of the usual audit of the financial
statements.
Required: Discuss matters that you would consider in developing the audit strategy for Teejan
Enterprises.

Answer 1