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Solution Library
Installation of New Machines Affecting Audit Plans
Question
Your accounting firm is the auditor of FNU Limited, which is a large public company whose year-end is 30 June 2010. FNU operates three divisions: entertainment, hospitality, and tourism and leisure. Each division is run as a separate business, with its own accounting system and management team. While planning the audit of FNU, you become aware of the following independent and material situations:
Entertainment division
(i) The entertainment division owns the largest chain of cinemas in Australia. Owing to changes in technology in the USA, movie distributors will shortly begin releasing films using a recording system that is incompatible with the movie projectors used by FNU.
Approximately 70 per cent of the movies the entertainment division screens are sourced from the USA. The movie projectors currently have an estimated useful life of four years. FNU has sufficient financial resources to purchase and install new movie projectors without interrupting cinema operations.
(ii) In March 2010 the entertainment division introduced a new general ledger system.
Apart from a few teething problems the system seems to be functioning well and now produces a range of management reports that were not previously available. Owing to an oversight by your firm’s computer audit division, no audit staff was present during the conversion process
Required:
For each of the situations (i) to (vi):
(1) Discuss and explain how the situation may affect your audit plan?
(2) Discuss and explain further information you consider necessary to obtain prior to finalising your audit program?
Summary
The question belongs to Accounting and it is about audit plan for a group of companies named FNU Ltd. FNU Ltd has an entertainment section offering movies. In a new move, most distributors are offering movies which are incompatible with the present projectors. The company has sufficient financial resources to purchase new projectors without interrupting cinema operations. The affect on the ledger has been explained in the solution in detail.
Total Word Count 647
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