The following scenario relates to questions 1 – 5
It is 1 July 20X5. You are an audit manager in Woodwind & Co and you are planning the audit of
Flute Co, a new audit client for your firm which has a year ended of 30 June 20X5. Flute Co is a large
mobile phone company which operates a network of stores in countries across Europe.
You have been provided with planning notes from the audit engagement partner following his
meeting with the finance director.
During the year the company introduced a bonus based on sales for its sales team. The bonus target
was based on increasing the number of customers signing up for 24‐month phone line contracts.
This strategy has been successful and revenue has increased by 15% compared with 20X4. In
particular, there has been a significant increase in sales in May and June 20X5.
Technology companies which supply Flute Co with mobile phones release new versions with
updated features every twelve months. When new phones are released, Flute & Co offers significant
discounts on older versions.
You are to undertake a preliminary analytical review of the draft financial statements and have been
provided with the following information:
Overvaluation of inventory and receivables are considered to be significant risks for this year’s audit.