Reference no: EM132606762

You are a trainee accountant in the audit department of Fawlty Bean & Co, a large regional accountancy practice based in Hull, East Yorkshire. The audit Manager (who is your line manager and supervisor) is Mr B Johnson. He is due to go on two weeks' holiday tomorrow with his fiancé and new baby son. In his absence he has asked you to look at some client work and prepare detailed responses ready to discuss with him on his return from vacation. He has also given you some file notes he has made on a competitor firm who are undertaking practices which he considers to be unethical and, as a trainee with up-to-date knowledge, he would like your observations. The following are summaries of the files:

File

The Get Yourself Fit Co (GYFC) operates a chain of five gymnasia and boxing clubs based in Yorkshire and Humberside. You are an audit manager with Crosby & Sinatra, a medium-sized local accountancy and audit firm based in Hull, and are about to start GYFC's annual audit for the year ended 31st March 2020. The following matters have been brought to your attention.

1) GYFC's finance director has informed you that an error occurred when the purchase ledger was closed off at the year end. Instead of being closed off at 31st March, it was closed off a week earlier, on 24th March. All invoices from suppliers received between 24th March and the year end have been posted to the purchase ledger for 31st March 2020.

2) The trade receivables for GYFC have in the past been low, as most members paid a monthly subscription in advance. However, during the year ended 31st March 2020, several multinational companies have taken up a group membership, and GYFC invoices them monthly, in arrears, based on the number of company employees who use the facilities. Consequently, the balance on the year end trade receivables' ledger is now material. Your audit senior has undertaken a trade receivables' circularisation at the year end, but several companies have not responded and a number of responses show a difference from GYFC's figures.

3) GYFC has spent a significant amount of money just before its year end upgrading its equipment (exercise bikes and treadmills). The reason for GYFC's upgrade of its equipment was because several of the multinational companies' employees alleged that they had received serious injuries from the equipment they had used because it was old and not well maintained, and are claiming substantial damages. While not currently admitting any liability for this, GYFC decided to bring forward its capital equipment renewal programme. Its lawyers have received the claim but are unsure whether the company will win its case in court.

4) GYFC offers drinks and light meals to its members in bar areas in each of its clubs, serving both alcoholic (chiefly 'real' ale and fine wines) and non-alcoholic drinks and offering a range of food, including vegan and vegetarian options. However, several barrels of 'real' ale from a batch that a particular supplier recently delivered to all the clubs have found to be contaminated (fortunately before any customers tried them), and GYFC's finance director thinks the entire delivery should be written off as damaged inventory.

Required:

Question 1: For each of the audit areas noted in the file identify substantive audit procedures you would need employ to obtain sufficient and appropriate audit evidence.