Question

You are the manager in charge of the audit of Marfo Ltd, a company which manufacture biscuit and confectionery. You wish to employ a junior manager of staff to audit the trade creditors, accruals and provision as shown in the balance sheet at the year end and are in the process of preparing audit programme which clearly explain the purpose and the extent of the work at each stage of the audit.

The draft figures for ‘creditors: amount falling due within one year’ as of 31^st December 2018 (with 2017 comparative figures) are as follows

  

                                                          31^st December 2018                       2017

                                                               GH₡ GH₡

         Trade creditors                           261,521                                      177,625

         Sundry Accruals                          21,162                                        18,177

        Provisions: Legal actions 40,000                                           -

                            Factory Repairs         72,000                                        62,000

394,683                                      257,802      

Note 1.       Legal action provision relates to a legal action brought by a competitor who claims

                   Their manufacturing process has been copied.

Note 2.     Factory repairs provision was first set up in 2017 and relates to the sum required to be

                Spent on urgent repairs to the factory foundation and structural steelwork

                (GH₡58,500 was spent during the tear ending 31^st December 2017)

Required:         

For Marfo Ltd, set out (with an explanation of the purpose of each stage outline programme for the audit of:

          a,       Trade creditors

b.          Sundry accruals

   c.          Provisions

Answer 1

Audit Plan for Provisons:
Evaluation of Previous B/S	Inorder to determine the provisons evaluate the expenses incurred or increased during the year
Documenation of Increase in Provsion:	Check with documentation on sample basis, actually to be incurred with sufficient cause or simply provided the same with no substantive documents. Or intention is to lower the profits etc.
Estimation Reliability Methods:	Method for determining amount to be provided need to be evaluated.
Dealing with Specific Cause 2:	Increase in Repair work, which is one time in nature as Foundation hence such expenses need to be evaluated to determien their originality simply provided in books for monetary benefits.
Dealing with Specific Cause 1:	Here, Legal Sue for copying manufactuirng process, Legal Advisor report as well as manageent consideraions and comments to be well evalluated and accordingly provide recommendarions to the management whetehr amount need to be provided or not. Estimation is correct or not.
Audit Plan for Sundry Accruals:
AS per Audit View, compariosn is required to be made in each and evry account.
Secondly, determine the value of inrease in the same
Thirdly, Check that any major machien expenses which need to be capitalsied is not credited herewith
fourth, Documentary evidence need to be checked and evaluation of type of expenses charegd to this account
It can be recommended to do 100% auditing as the amount is reflecting lower value to another accounts.
Audit Plan for Trade Creditirs
Evaluation of Previous B/s and Correlated Accounts:	Same is evaluated by checking the compariosn figure from comparative balance sheet, anay increse or decrease.
Relatve Accounts to be evaluated	Purchase accounts and Debit Note Account
Ageging Report	Here, Bifuracated on the basis of no. of Days pending or not paid, reason thereof to be evaluated and Request for Management Commendfrs here with
Written off Policy	Auditir May refer the Writen off policy of the Company whether same has been followed or not.
Creation of Creditors are on Maker and Checker Basis
All PO are approve, PO is always showing less quantity as comapred to PR.