Your audit firm Pasti & Co has just gained a new audit client named HonshaStone Co (HS). You are a part of the audit team who in charge for audit work planning. HS’s year end is 31 May 2022 with a scheduled date to complete the audit in August 2022.
HS provides repair services to motor vehicles from 10 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system. The software in each location is the same because the programs were written specifically for HS by a reputable software house. Data from each location is amalgamated on a monthly basis at HS’s head office to produce management and financial accounts.
You are currently planning your audit approach for HS. One option being considered is to re-write Pasti & Co’s audit software to interrogate the computerised inventory systems in each location of HS as part of inventory valuation testing. However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July and August are the major holiday period for your audit firm.
Required:
Explain the problems that may be encountered in the audit of HonshaStone Co and for each problem, explain how that problem could be overcome. (10 marks)