Willow Co is a print supplier to businesses, printing catalogues, leaflets, training manuals and stationery to order. It specialises in using 100% recycled paper in its printing, a fact which is promoted heavily in its advertising.

You are a senior audit manager in Bark & Co, and you have just been placed in charge of the audit of Willow Co. The audit for the year ended 31 August 2011 is nearing completion, and the audit engagement partner, Jasmine Berry, has sent you an email:

To: Audit manager
From: Jasmine Berry, Audit partner
Subject: Audit completion and other issues – Willow Co

Hello

The manager previously assigned to the audit of Willow Co has been moved to another urgent assignment, so thank you for stepping in to take on the manager’s role this late in the audit. The audit report is due to be issued in two weeks’ time, and the audit senior has prepared a summary of matters for your consideration.

I have been asked to attend a meeting with the audit committee of Willow Co tomorrow, so I need you to update me on how the audit has progressed. I am asking you to prepare briefing notes for my use in which you:

Assess the audit implications of the THREE issues related to audit work raised by the audit senior. Your assessment should consider the sufficiency of evidence obtained, explain any adjustments that may be necessary to the financial statements, and describe the impact on the audit report if these adjustments are not made. You should also recommend any further audit procedures necessary. (15 marks)

Thanks

Summary of issues for manager’s attention, prepared by audit senior

Materiality has been determined as follows:

$800,000 for assets and liabilities
$250,000 for income and expenses

Issues related to audit work performed:

(iii) Audit work on current assets

Willow Co made a loan of $6,000 to Cherry Laurel, the finance director, on 30 June 2011. The amount is recognised as a current asset. The loan carries an interest rate of 4% which we have confirmed to be the market rate for short-term loans and we have concluded that the loan is an arm’s length transaction.

Cherry has provided written confirmation that she intends to repay the loan by 31 March 2012. The only other audit work performed was to agree the cash payment to the cash book. Details of the loan made to Cherry have not been separately disclosed in the financial statements.

Other issues for your attention:

Property revaluations

Willow Co currently adopts an accounting policy of recognising properties at cost. During the audit of non-current assets Willow Co’s property manager said that the company is considering a change of accounting policy so that properties would be recognised at fair value from 1 January 2012.

Non-current asset register

The audit of non-current assets was delayed by a week. We had asked for the non-current asset register reconciliation to be completed by the client prior to commencement of our audit procedures on non-current assets, but it seems that the person responsible for the reconciliation went on holiday having forgotten to prepare the reconciliation. This happened on last year’s audit as well, and the issue was discussed with the audit committee at that time.

Procurement procedures

We found during our testing of trade payables that an approved supplier list is not maintained, and invoices received are not always matched back to goods received notes. This was mentioned to the procurement manager, who said that suppliers are switched fairly often, depending on which supplier is the cheapest, so it would be difficult to maintain an up-to-date approved supplier list.

Financial controller

Mia Fern, Willow Co’s financial controller, owns a holiday home overseas. It appears that she offered the audit team free use of the holiday home for three weeks after the audit, as a reward for the team’s hard work. She also bought lunch for the audit team on most days.

Required:

Respond to the partner’s email.