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Question

your accounting firm is the auditor of FNU Limited, which is alarge public company whose year-end is 30 June 2010. FNU operatesthree divisions: entertainment, hospitality, and tourism andleisure. Each division is run as a separate business, with its ownaccounting system and management team. While planning the audit ofFNU, you become aware of the following independent and materialsituations: Entertainment division (i) The entertainment divisionowns the largest chain of cinemas in Australia. Owing to changes intechnology in the USA, movie distributors will shortly beginreleasing films using a recording system that is incompatible withthe movie projectors used by FNU. Approximately 70 per cent of themovies the entertainment division screens are sourced from the USA.The movie projectors currently have an estimated useful life offour years. FNU has sufficient financial resources to purchase andinstall new movie projectors without interrupting cinemaoperations. (ii) In March 2010 the entertainment divisionintroduced a new general ledger system. Apart from a few teethingproblems the system seems to be functioning well and now produces arange of management reports that were not previously available.Owing to an oversight by your firm’s computer audit division, noaudit staff was present during the conversion process Required: Foreach of the situations (i) to (vi): (1) Discuss and explain how thesituation may affect your audit plan? (2) Discuss and explainfurther information you consider necessary to obtain prior tofinalising your audit program? (3) According to ISA 315, AN AUDITORNEEDS TO TAKE CERTAIN STEPS TO UNDERSTAND THE ENTITY AND ITSENVIRONMENT.OUTLINE THESE KEY STEPS.(5MARKS)

Solution

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