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| Electrical Goods Co Introduction Electrical Goods Co (Electrical) manufactures televisions and DVD and Blu-ray players. It has been trading for 6 years and sells to high street retailers across the country. Electrical offers a 2 year warranty on all products sold. Electrical operates from a head office and one small manufacturing plant. Each of these premises is rented from separate landlords. The company’s year end is 30 September 20X1. Review of current year During the year, Electrical has continued to grow, albeit more quickly than in previous years. This has meant that they needed larger manufacturing premises and so the board of directors decided to buy a large manufacturing plant. Electrical has incurred costs of $860,000 to acquire the new manufacturing plant, this amount includes the site acquisition cost and all legal fees as well as a 3 year insurance plan taken out in relation to the building. The purchase of the new manufacturing plant was financed by a bank loan of $750,000 and was completed on 1 September 20X1. Electrical will vacate their rented manufacturing plant on 1 January 20X2 and so have been able to increase production capacity by operating from both manufacturing plants during September 20X1. The new plant has become available at an important time for Electrical as they are also in the process of tendering for a contract to supply goods to one of the leading high street retailers. Electrical is confident of winning the contract and has already taken out an additional $100,000 on its bank loan so that it can increase production so it has sufficient inventory available should it win the contract. The contract will be awarded on 1 December 20X1. Wages system and staff bonus During the year, Electrical introduced a new computerised wages system. Head office staff (including management and directors) are paid a monthly salary which does not change from one month to the next. Certain management have annual sales targets to meet and will be paid a bonus at the year end if these sales targets are achieved. Sales targets are felt to be reasonably ambitious. Staff working in the manufacturing plant are paid on a weekly basis (40 hours per week). They are paid one of two hourly rates depending on their staff grade. Where necessary overtime is worked and this is paid at 1½ times the hourly rate. All overtime is authorised and signed off prior to it being carried out, by the completion of an overtime schedule by the manufacturing plant manager. Manufacturing staff are required to clock in and clock out and the beginning and end of each shift. The hours recorded as worked are automatically forwarded to the payroll department at the end of each week. Several new staff have been employed during the year. Once employed, human resources allocate the employee a staff number and send an authorised new joiner report form to the payroll department which contains the employee’s staff number, salary and bank details. All staff are paid directly in to their bank account by BACS transfer.Required: (a) List SIX objectives of planning an audit. (3 marks) |