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July 2019 Question 3 Jazz Co manufactures motor vehicle components and its year end was 30 June 20X8. You are an audit supervisor of Spearmint & Co and the final audit is due to commence shortly. Total assets are $432m and profit before tax is $72m.

The following matters have been brought to your attention:

Trade receivables

Jazz Cos trade receivables ledger is comprised of a large number of customers. In previous years, the audit team has undertaken a positive trade receivables circularisation to confirm yearend balances. However, the customer response rate has historically been low and so alternative audit procedures have been undertaken. A decision has been made that for the current year audit a circularisation will not be performed. The year-end trade receivables balance is $39m (20X7: $28m) and the allowance for trade receivables is $410,000 (20X7: $300,000).

Bank balances

The bank and cash figure included in Jazz Cos draft financial statements is comprised of a number of bank account balances: an overdraft of $51m which is the companys main current account and $02m relating to several savings accounts. The finance director has informed the audit manager that all accounts have been reconciled as at the year end. The overdraft of $51m has increased significantly since the prior year (20X7: $12m). The directors have informed you that the overdraft facility, which the company requires in order to operate on a daily basis, is due for renewal in October 20X8 and that they are confident it will be renewed.

Depreciation

The company has a large portfolio of property, plant and equipment (PPE). During the year under review, the company carried out a full review of all its PPE and updated the useful lives, residual values, depreciation rates and methods for many categories of asset. The finance director felt the changes were necessary to better reflect the use of the assets. This resulted in the depreciation charge of some assets changing significantly for this year.

a) Describe briefly the two factors that influence the persuasiveness of evidence. (5 marks)

b) Describe substantive procedures the auditor should perform to obtain audit evidence in relation to Jazz Cos trade receivables. (5 marks)

c) Describe substantive procedures the auditor should perform to obtain audit evidence in relation to Jazz Cos bank balances.

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