Kobain Co

Up to 1 mark for each matter/evidence:

Matters

– Risk and reward not transferred to external vendor
– Kobain Co retains managerial involvement
– Revenue recognised too early
– Materiality
– Implication for auditor’s opinion
– Opening balances could be misstated

Evidence

– Confirm terms of arrangement by review of signed contract
– Consider whether terms of contract mean that revenue should be recognised
– Confirmation of inventories held by external vendors
– Determine amount of returns normally made under the contract
– Attendance at external vendors inventory count
– Supporting documentation on opening balances

Maximum marks 6