Reference no: EM132911033

Consider the following two independent situations:

(i) Doutta Gala operates several nursing homes in Australia. The company charges a fixed fee per week as set by legislation from all residents. Due to the quality of care provided, occupancy rates are always at or are very close to full. You have tested internal controls surrounding occupancy revenue and results support a very high level of reliance on these controls.

(ii) You are the auditor of Godfrey Ltd (Godfrey). Godfrey is majority owned and run by Karina Gill. It operates a chain of discount stores selling a range of continually changing merchandise. Karina handles all inventory purchases for the business, scouring auction houses in order to buy large lots of liquidated stock at bargain prices. Karina makes all decisions regarding what stock to purchase, the price to pay and, given that goods sold at auction have to be paid for immediately, is the sole signatory to the company's bank account. You have determined that there are no controls over inventory purchases on which you can place reliance. However, you do note that Karina keeps all available documentation, which is passed on to the accountant for checking and processing.

Required:

Problem 1: Explain how the information provided above would affect the nature, timing and extent of substantive procedures for occupancy revenue in situation (i) and purchases for situation (ii).