Question

ssessment item 3 back to top Case B - Report Value: 20% Due Date: 16-Sep-2018 Return Date: 05-Oct-2018 Length: 3000 words Submission method options: Alternative submission method Task back to top Background You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors. Ratios extracted from an unaudited set of financial reports at 30 June 2018 together with audited comparatives for the year ended 30 June 2017 and 2016 are set out below for your review. You are gathering information to prepare the audit plan of Trunkey Creek Wines Limited for the year ended 30 June 2018. Trunkey Creek Wines (TCW) is one of MYH’s most significant and longstanding clients. The following information has been gathered to date. Principal activities of TCW • growing grapes for wine production; • production and distribution of red, white and sparkling wines; • beef cattle production on land surplus to grape production; and • investment of surplus funds. TCW was originally a family company incorporated in 1968 and has operated successfully and profitably since that date. In the 1990’s shares were sold to a small number of investors to increase funds for the development and upgrading of the winery and the purchase of additional land for the vineyards. Insufficient rainfall had meant that some land was no longer suitable for wine grape production, as a result, TWC moved into Wagyu beef cattle production on this surplus land. The Wagyu operation is now starting to return a profit. TWC now find that the 2 degrees increase in temperature at some vineyards is affecting the production of sparkling wine and are now looking at purchasing land in cooler climates. TWC has built up a strong following for their sparkling wine which earns significant profits in both domestic and overseas markets. TWC are currently negotiating the land purchase and part funding in part from medium term bank loans. The remaining purchase price will be sourced from surplus funds. The Wagyu beef is sold through the Wagyu Selling Group (WSG) in which TWC has shares. These shares form a material part of TWC’s investment portfolio. WSG buys, butchers and sells the Wagyu beef to high end domestic restaurants and regularly sends frozen shipments to Japan and China. TWC are heavily marketing their pinot, both domestically and overseas, as a perfect accompaniment to the Wagyu beef. The directors of TCW are: Mrs Claire Harewood, Chairman. Mrs Harewood has significant experience in the industry and replaced her husband as chair when he died 10 years ago. Mr Phillip Strange, Chief Executive Officer Mr. Joe Quade Mr Steven Harewood, son of Claire Harewood and has oversight of the Wagyu beef operation Dr Mary Owens Ms Hilary Jones Mr Geoffrey Owens

Answer 1

ANSWER:

A) Account - The review accomplice is fundamentally worried around 4 unique records head i.e. I) Accounts Receivable, ii) Investments, iii) Property Assets, iv) showcasing Expenses.

I) Accounts Receivable demonstrates the sum the element is qualified for recuperate from the client for offers of merchandise or giving of administrations.

ii) Investment alludes to different here and now venture done by the element for creating the income for brief timeframe. The organization may arrange venture in view of liquidity.

iii) Property Assets alludes to the settled resources possessed by the organization, for example, arrive, building and so on, for use during the time spent creation or for inferring the rental pay.

iv) Marketing Expense are those costs which are brought about to display an association products and enterprises to their imminent customers.These costs might be ordered into advertising,agency fees,customer studies advancement of publicizing and different advancements and so on.

B) Analysis - The different proportion given shows the situation of advantages over the timeframe. The days in stock wine proportion demonstrates the turnover of stock which is devoured by wine. This demonstrates the normal number of days in which the element sold the stock after acquisition. The days in stock proportion is diminishing from 2016 onwards. In year 2016, the organization is offering the stock on a normal inside 460 days and a similar lessening to 423 days in 2017 and afterward to 367 days. This shows the offers of the organization is step by step diminishing and there are less outdated stocks lying in stock. Days in money due proportion demonstrates the normal days inside which the element recoups the sum from the account holders. In year 2016, the element recuperate the sum due from account holders with wine inside 53.24 days and hamburger with 24 , anyway similar increments to 60.65 out of 2017 and 50.2 of every 2018 .However there is an adjustment in the meat part which expanded to 36 and 57 out of 2017 and 2018 . This shows the organization isn't actualizing the sufficient follow-up system for recuperation of due from indebted individuals and the odds of awful obligation is expanding step by step

C) Audit Risk - The review chance in various regions is clarified beneath: -

I) Accounts Receivable - a) Possibility of over-proclamation of indebted individuals because of chronicle of wrong deal or non-recording of installment got

b) Chances of terrible obligation due to inadeuate follow-up methodology

ii) Current Investment - a) Possibility that present venture may not be effectively esteemed

b) Investment may not be done in rectify zone and after legitimate investigation

iii) Property Assets - an) Incorrect valuation of settled resources

b) Depreciation may not be accurately processed and charged prompting over-valuation of benefits

c) The property may not has a place with the substance

iv) Intangible resources - an) Incorrect valuation

b) Impairment may not be effectively registered and charged

c) Ownership of property may not have a place with the substance.

v) Marketing Expenses-two much accentuation on the promoting costs like publicizing ,office costs sponsorships and so forth.

D) Internal Control and its steps to reduce risks - The evaluator ought to confirm the accompanying -

a) Debtors - I) Verify whether the deals are recorded at revise esteem

ii) Check whether the arrival of material are represented

ii) Check whether satisfactory follow-up system is set up

iv) Verify whether the organization is making arrangement based on satisfactory estimation

b) Investment - I) Verify the territories in which speculation is finished by organization

ii) Check the possession reports for venture

iii) Verify the loan fee and check the representing same

iv) Check whether venture is done in the wake of looking at different speculation alternatives

c) Property Assets - I) Verify whether the deal and buys of advantages are accurately represented

ii) Verify the proprietorship archive

ii) Verify the calculation of devaluation, benefit/misfortune at a bargain of advantages

d) Intangible resources - I) Verify whether the valuation of advantages is accurately done

ii) Verify different records for responsibility for

e) Marketing costs.

I) Check the misfortune openings bringing about poor deals results and diminish benefits

ii) Check whether the association can't convey on benefit promises,damaging notoriety and brand.

iii)Check that whether the advancement/offer is too exorbitant for association which may prompt money related misfortune.

iv)Check that there is sufficient Market inquire about and benchmarking done to stay aggressive however that ought to be alinged to industry.

Support and Listing of Weakness if there should be an occurrence of Purchase and Accounts Payable

Records Payable :

Seperation of Duties :Verify whether that the installment of reports are handled accurately by the diverse individuals in the association which can prompt the accompanying shortcoming like

Incorrect or fradulent solicitations affirmed for installment

Unapproved installments made to non existent sellers

Responsibility ,approval and approval:Accountability would guarantee that the things are approved investigated and endorsement of solicitations are made in view of marked agreements,contract terms and buy orders.Following may the potential outcomes if the responsibility does not exist

Watch that the unapproved pointless or false installments are made or not

Watch that the unapproved work which are performed by merchants.

Check whether there is loss of provisions because generally installments

Check whether inappropriate charges are made to erroneous records or assets

Check whether there is an irreconcilable situation while paying representative for unapproved outside work

Security of Assets Once the products are gotten there ought to be an anchored loaction where it ought to be kept.So the stock ought to be occasionally tallied and ought to be contrasted and the sums on control records.However the potential results if the benefits have not been anchored are as beneath:

Check whether there is robbery of merchandise

Check whether there is a stock lack

Check whether there are any extra expenses brought about for substitution.

Audit and Reconciliation:The compromise exercises are done for the buys being made and charged correectly.Howvever there are potential results if the survey and compromise isn't performed.

Check whether there are ill-advised charges made to departmental spending plans

Check whether there are restrictions coming about because of costs charged to wrong records

Check whether there are installments made for things or administrations not gave.

The means which can be a soft spot for the inside control for buys are recorded down beneath:

To Verify and check whether there is an inside control made for purcahsing by relegating the errands responsible for somebody.

After it is appointed it is impertative to check whether the procedure for submitting and favoring the buy ask for are done accurately or not.

To Verify whether there is a seller rundown to enroll all the buy which are produced using distinctive merchants as far as price,customer administration and credit terms

To confirm that there should a procedure that representatives submit for buy demands and the endorsement shape ought to approve the workers who are enrolled for buys.