Katmir is a manufacturer of mattresses in Kordofan Sudan. The company is 100 percent owned by the Alnashar family and all of the management are related to the founder, El Hussein Alnashar, who all employees refer to as “Honored Boss.” Honored Boss does not trust accounting records and only has an outside accountant (who is his nephew) come to the factory for the last two weeks of every second month to do a physical inventory, put together financial statements, and do tax estimates. For some time, Honored Boss has been looking for a buyer for his company because he wants to retire and he does not trust any of this children or relatives to run the company. Centaur Sleep Products of Cairo has shown an interest in purchasing the company. Centaur wishes to send an audit team to Katmir to do a physical inventory and review the books. Required: In determining what time the auditors should go to the Katmir factory to do their procedures, they consider such matters as: (1) the control environment; (2) when relevant information is available; (3) the nature of the risk; and (4) the period or date to which the audit evidence relates. Discuss what impact each of the four considerations mentioned above would have on setting the time to review Katmir’s control procedures and to do substantive tests
Katmir is a manufacturer of mattresses in Kordofan Sudan. The company is 100 percent owned by the Alnashar family and all of the management are related to the founder, El Hussein Alnashar, who all employees refer to as “Honored Boss.” Honored Boss does not trust accounting records and only has an outside accountant (who is his nephew) come to the factory for the last two weeks of every second month to do a physical inventory, put together financial statements, and do tax estimates. For some time, Honored Boss has been looking for a buyer for his company because he wants to retire and he does not trust any of this children or relatives to run the company. Centaur Sleep Products of Cairo has shown an interest in purchasing the company. Centaur wishes to send an audit team to Katmir to do a physical inventory and review the books.
Required:
In determining what time the auditors should go to the Katmir factory to do their procedures, they consider such matters as: (1) the control environment; (2) when relevant information is available; (3) the nature of the risk; and (4) the period or date to which the audit evidence relates. Discuss what impact each of the four considerations mentioned above would have on setting the time to review Katmir’s control procedures and to do substantive tests.
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