You are an audit manager for Elle and Emm, Chartered Certified…

  

You are an audit manager for Elle and Emm, Chartered Certified… You are an audit manager for Elle and Emm, Chartered Certified Accountants. You are carrying out the planning of the audit of Sellfones Co, a listed company, and a high street retailer of mobile phones, for the year ending 30 September 20X7. The notes from your planning meeting with Pami Desai, the financial director, include the following. (1) One of Sellfones’ main competitors ceased trading during the year due to the increasing pressure on margins in the industry and competition from online retailers. (2) A new management structure has been implemented, with 10 new divisional managers appointed during the year. The high street shops have been allocated to these managers, with approximately 20 branch managers reporting to each divisional manager. The divisional managers have been set challenging financial targets for their areas, with substantial bonuses offered to incentivise them to meet the targets. The board of directors have also decided to cut the amount that will be paid to shop staff as a Christmas bonus. (3) In response to recommendations in the prior year’s Report to Management, a new inventory system has been implemented. There were some problems in its first months of operation but a report has been submitted to the board by Steven MacLennan, the chief accountant, confirming that the problems have all been resolved and that information produced by the system will be accurate. Pami commented that the chief accountant has had to work very long hours to deal with this new system, often working at weekends and even refusing to take any leave until the system was running properly. (4) The company is planning to raise new capital through a share issue after the year-end in order to finance expansion of the business into other countries in Europe. As a result, Pami has requested that the auditor’s report is signed off by 15 December 20X7 (six weeks earlier than in previous years). (5) The latest board summary of results includes:9 months to 30 June 20X7 (unaudited)             Year to 30 September 20X6 (audited) Revenue          P320m                                                       Revenue                      P280m Cost of sales   P 215m                                               Cost of sales                       P199m Gross profit     P105m                                                Gross profit                         P81m Operating expenses (P89m)                                   Operating expenses               (P7m)Profit on sale ofProperty                       P30mProfit before Tax        P46m                                      Profit before Tax                 P11m 6. Several shop properties owned by the company were sold under sale and leaseback arrangementsRequired:Identify and explain any fraud risk factors that the audit team should consider when planning the audit of Sellphones Co.   (20 Marks) Business Accounting Share (0)