2. You are the external auditor of Tracey Transports plc (TT). The company’s year-end is 31 March. You are been the auditor since the company was formed 24 years ago to take advantage of the increase in good being transported by road. Many companies need to transport their products but did not always have sufficient vehicles to move them. TT therefore purchased ten vehicles and hired these to haulage companies for amounts of time ranging from three days to six months.

The business has grown in size and profitability and now has over 550 vehicles on hire to many different companies. At any one time, between five and 20 vehicles are located at the company premises where they are being repaired; the rest could be anywhere on the extensive rad network of the country it operates in. Full details of all vehicles are maintained in the non-current asset register.

Bookings for hire of vehicles are received either over the telephone or via email in TT’s offices. A booking clerk checks the customer’s credit status on the receivables ledger and then the availability of vehicles using the Vehicle Management System (VMS) software on TT’s computer network. Emails are filed electronically by customer name in the email programme used by TT. If the customer’s credit rating is acceptable and the vehicles is available, the booking is entered into the VMS and confirmed to the customer using the telephone or email. Booking information is then transferred within the network from the VMS to the receivables ledger programme, where a sales invoice is raised. Standard rental amounts are allocated to each booking depending on the amount of time the vehicles is being hired for. Hard copy invoices ae sent in the post for telephone orders or via email for email orders.

The main class of asset on TT’s statement of financial position is the vehicles. The carrying amount of the vehicles is £6 million out of total net assets of £15 million as at 31 March 2018.

Required

a) Explain what is meant by audit risk

b) List and explain the reason for the audit test you should perform to verify the completeness and accuracy of the sales figure in TT’s financial statements.

c) Outline a plan to audit property, plant and equipment which gives appropriate consideration to the factors affecting audit risk evident in the scenario

d) Explain what work will be carried out on receivables at the year-end audit.