Gasoleum Ltd
Your firm is the auditor of Gasoleum Ltd which operates 15 petrol stations in and around London. You are the senior in charge of the audit for the year ending 31 January 2010, and are engaged on the audit planning.
Most of the entity's sites are long established and, as well as supplying fuel, oil, air and water, have a car wash and a shop.
Over the last few years, due to the intense price competition in petrol retailing, the shops have been expanded into mini-markets with a wide range of motor accessories, food, drinks and household products. They also sell National Lottery tickets.
Point-of-sale microcomputers are installed in all the petrol stations, linked on-line via a network to the computer at head office. Sales and inventory data are input direct from the microcomputers.
The entity has an internal auditor, whose group function is to monitor continuously and test the operation of internal controls throughout the organisation. The internal auditor will also be responsible for co-ordinating the year-end inventory count.
Prepare notes for a planning meeting with the audit partner which:
(a) Identify areas of potential risk which will have to be addressed by the audit;
(b) describe the extent to which the work performed by the internal auditor may affect your planning, and the factors that could limit the use you may wish to make of his work; and
(c) Detail the analytical review procedures that you would adopt to obtain audit evidence on income and gross profit as part of your substantive testing.