SECTION A

1 You are the audit senior of White & Co and are planning the audit of Redsmith Co for the year ended 31 May 2018. The company produces printers and has been a client of your firm for two years; your audit manager has already had a planning meeting with the finance director. He has provided you with the following notes of his meeting and financial statement extracts.

Redsmith’s management were disappointed with the 2017 results and so in 2018 undertook a number of strategies to improve the trading results. This included the introduction of a generous sales-related bonus scheme for their sales clerks and a high profile advertising campaign. In addition, as market conditions are difficult for their customers, they have extended the credit period given to them.

The finance director of Redsmith has reviewed the inventory valuation policy and has included additional overheads incurred this year as he considers them production related. He is happy with the 2017 results and feels that they are a good reflection of the improved trading levels.

Required

a) Explain how audit planning helps to assist in the selection of audit team members.

b) Identify and explain five risk factors for the audit of Redsmith (you should sue analytical procedures to help you identify some of the risks).

c) For each risk you have identified discuss the effect it will have on your plans for the audit of Redsmith.

d) Outline the auditor’s responsibilities in connection with fraud.