AC220 Auditing II
TUTORIAL 3
You are the auditor of Pot Ltd, a large food processing company with a well known trade name. Pot
Ltd supplied a wide variety of food products to a diverse retail market which varies from
supermarkets to corner cafes. All sales by Pot Ltd are made on credit and, with the exception of the
supermarkets which have 60 days for payment, all credit sales are on 30 day terms.
You have commenced the final audit of Pot Ltd for the year ended 28 February 2017. Your planning
procedures indicated that the business has remained largely unchanged from the prior year and that
there are no specific risk factors concerning debtors. The results of your compliance tests carried out
during the interim audit confirmed that you can place reliance on internal controls over sales and
debtors in designing your audit approach.
For purposes of your audit, you have compiled the following information regarding the accounts
receivable at year end:
1. Materiality
2. Balance sheet disclosure:
Accounts receivable
3. Composition per trial balance:
Trade debtors
Short-term loan to subsidiary
Loans to directors & personnel
Prepayments
Provision doubtful debts (4%)
$300 000
2017
$’000
30 201
2016
$’000
24 127
25 252
2 000
1 756
2 451
(1 258)
30 201
20 151
1 200
1 483
2 298
(1 005)
24 127
4. The financial accountant of Pot Ltd has summarised the movement on the trade debtors control
account as follows
Balance at 1 March 2016
Credit Sales
Receipts from Trade Debtors
Sales returns
Settlement discounts
Bad debts written off
Balance at 28 Feb 2017
19 151 105
95 286 281
(83 192 572)
(1 854 194)
(1 642 049)
(2 495 521)
25 252 050
5. List of trade debtors and age analysis of each market segment
Balance
28/02/2017
$'000
Current
month
$'000
30 Days
60 Days
90 Days
120
days
$'000
$'000
$'000
$'000
Supermarkets
PicknChoose
Marche & Bon
KO
5150
3398
4236
1458
1121
1723
1390
987
1378
1997
793
1135
305
497
Chain Stores
20 Chain
stores
7104
2797
2105
1294
658
251
Cafes
350 cafes
6364
2367
2203
752
626
416
Credit
balances
Total
-1000
25252
-1000
8466
8063
5971
2086
667
Debtors
REQUIRED:
a) State with reasons how you would select the specific debtors balances for your year end
circularisation of the trade debtors of Pot Ltd. (8)
b) Describe how you maintain control over the circularization process. (10)
c) Critically review the provision of doubtful debts made by Pot Ltd at 28 February 2017 (13)
d) List any other issues, arising from information provided, that you believe will require further audit
attention. (9)
Total 40 Marks