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You are the senior in charge of the audit of Brampton Co for the year ending 31 January 2010 and are currently planning the year-end audit. Brampton specialises in the production of high quality bread of various kinds.
During the interim audit you noted that, in the present economic down-turn, the company has suffered as its costs are increasing and its prices have been higher than its competitors because of lower production runs. One indicator of the problems facing the company is that it has consistently used a bank overdraft facility to finance its activities.
At the time of the interim audit you had discussed with company management what actions were being taken to improve the liquidity of the company and you were informed that the company plans to expand its facilities for producing white bread as this line had maintained its market share. The company has asked its bank for a loan to finance the expansion and also to maintain its working capital generally.
To support its request for a loan, the company has prepared a cash flow forecast for the two years from the end of the reporting period and the internal audit department has reported on the forecast to the board of directors. However, the bank has said it would like a report from the external auditors to confirm the accuracy of the forecast. Following this request the company has asked you to examine the cash flow forecast and then to report to the bank.
Required:
(c) Describe THREE procedures you would adopt in your examination of the cash flow forecast.

答案解析：

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(c) Audit procedures adopted in the examination of the cash flow forecast would include:
(1) Check that the opening balance of the cash forecast is in agreement with the closing balance of the cash book, to ensure the opening balance of the forecast is accurate.
(2) Consider how accurate company forecasts have been in the past by comparing past forecasts with actual outcomes. If forecasts have been reasonably accurate in the past, this would make it more likely that the current forecast is reliable.
(3) Determine the assumptions that have been made in the preparation of the cash flow forecast. For example, the company is experiencing a poor economic climate, so you would not expect cash flows from sales and realisation of receivables to increase, but either to decrease or remain stable. You are also aware that costs are rising so you would expect cost increases to be reflected in the cash forecasts.

(4) Examine the sales department detailed budgets for the two years ahead and, in particular, discuss with them the outlets that they will be targeting. This would help the auditor determine whether the cash derived from sales is soundly based.
(5) Examine the production department’s assessment of the non-current assets required to increase the production of white bread to the level required by the sales projections. Obtain an assessment of estimated cost of non-current assets, reviewing bids from suppliers, if available. This would provide evidence on material cash outflows.
(6) Consider the adequacy of the increased working capital that will be required as a result of the expansion. Increased working capital would result in cash outflows and it would be important to establish its adequacy.
(7) If relevant review the post year end period to compare the actual performance against the forecast figures.
(8) Recalculate and cast the cash flow forecast balances.
(9) Review board minutes for any other relevant issues which should be included within the forecast.
(10) Review the work of the internal audit department in preparing the cash flow forecast.

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