Briefing Notes

From: Audit Manager

To: Audit Partner

RE: Jolie Co Audit Planning

This report consist of evaluation of significant business risks faced by Jolie Co during the Final Audit,
Significant risk of material misstatement, Principal audit procedures in respect of valuation of JLC Brand
Name and evaluation of revenue raising suggestion made by commenting on the ethical and
professional issues raised.

(A) Significant business risks of Jolie Co

Jolie Company is selling high fashion items under the JLC brand name and new range of cloths are
introduced to the store every 8 weeks, and there is high dependence on the designers and the designer
tyurnover is higher. It states that there will be a anticipation in the market that ewvery Eight weeks or
two months under JLC Brand Name Jolie co will introduce new range of fashion products and there is
high dependency on the designers , but the designers are not permanent as the employee turnover is
high. So in crucial moments may be some of the key designers of the company can resign from the
position which results in failing in the introduction of new range of fashion trends may affect the brand
name and reputation of Jolie co.

The products can be sold through in-store as well as online and they developed a website as well for
ordering the same, through which overseas sales are also taken place. There are chances that the
website may be hacked , because it is recently developed and fake credit card details provided in order
to order the products and it also have a chance to crashing the website due to higher volume of users
enter the site as the new fashion trends are introduced in every eight months there are chances that in
that time website can crash thereby sales may not happen and the usersmay not return to the website
due to poor server design.

The overseas sales are also crucial to Jolie co and there involves exchange rate fluctuation risk for Jolie
co and the safeguard can be it should be invoiced in home currency and there will not be exchange loss.

Jolie co outsiourced the phone ordering facility to a outside country at least cost. Lower cost may impact
the quality of service provided to the Jolie co customers , moreover the employee numbers are also
lower and due to that the effectiove service will not be assured and this might affect the companys
reputation as the customer complaints may not be properly attended due to this and as well as online
reviews will also tell that he ordering facility is not upto the mark and it restrain from customers in
ordering through online.

Another business risk is involved with the distribution centres, these are operating in residential areas
and only can operate during 8 am to 6 am. And the noise level is also tested so any violation is resulted
in revoking of the licence provided for distribution centers. By analyzing the facts that it has seen 3 of
the distribution centres has lost the license due to violation of these rules and the same may happen to
other centers as well , So the covenants to operate the distribution networks are crucial for smooth and
quick delivery of Joliue co prpoducts, in case any more distribution centres are closed it will impact the
order delivery on time and impact brand and Company reputation.

The employees are appointed with casual agreements rather than employment contracts , this may
impose penalties from the authorities and the labour protection laws, as well as protest from labours
also may happen which may results in media attention as well as it may affect the reputation of the
company.

( B) Significant Risk of Misstatement

There are significant chances of misstatement exist during the final audit of Jolie co

The Jolie co was introduced new inventory system in June 20Y0. Which after the 6 Months of Financial
Year beginning, The Closing Balance of Inventory on 31st May 20Y0 should match with the opening
balance of inventory on 1st June 20Y0 and all the inventories may not been entered to the new system.
And the method followed in the new systeme is in line with the same method used by the Jolie co during
the first 6 Months.

The Brand Name of the Jolie co is not amortised and impaired from the date of acquisition and the same
will be materially misstated as the same is 12% of the total assets. As per IAS 38 Intangibe Assets ,
Intangible Assets should be amortised over the useful life of the assets if it has a finit life and otherwise
indefinite life it should be tested for impairment as per IAS 36 Impairment of Assets.

The company appointeed many employees in retail outlet with casual agrrement rather than
agreement contracts, It may create significant area of misstatement as there are chances that the wages
of the employees in the payroll may e overstated and from this the company is not liable to protect the
employees and in any case theft happens there are no chance the insurance company will repay the
insurance amount as the employee was not on a employment contarct.

As per IFRS 5 Non current assets held for sale it should be probable that sale will happen in next 1 year
and the same has been advertised and the buyer is located . From the statement form Jolie Co they are
sure about the sale of the division then the same should be value at the lower of Carrying Value and Net
realizable Vale. But it is not applied in the current scenario as the same has been carried at revalued
Amount instead of lower of Carrying Value and Net Realisable Value, From comparing with totalk assets
of the Jolie co it is a material figure as the total value of assets held for sale is almost 1.3% of the total
assets , We should ask the management to correct the misstatement and adjust the financial statement

If the management denies to do the same then we can issue an modified Audit report by mentioniung
the details in the other matter paragraph as it not that highly material for Jolie CO.
(C) Principle Audit Procedures during the Valuation of JLC Brand Name

As we are doing the Audit of JLC co for the first time we should verify the Agreement done between Jolie
co and the company who sold JLC Brand Name and the terms of the same and should carefully examine.

We should discuss with the management about the amortization procedure of JLC Brand and why it is
not done. If the Brand Name has indefinite life then every year impairment test to done and we should
discuss with the management the same has been done or not.

The Brand Consist of 12% of total assets of the Jolie co so that it is highly material figure. We should ask
the management to conduct the impairment test ask them to amortise the value of the brand during the
remaining useful life of the asset. As per IAS 38 Intangible Assets all intangible assets should be
amortised over the useful life of the asset and it should be tested for impairment every year if the
intangible asset has indefinite life.

We can inspect the market research reports done during the year regarding the impact of brand on
customers, customer feedbacks and survey conducted and Online review about the products and its
latest fashion lounges to get the idea of the JLC Brand Name value and the companys reputation to
understand the Brand Name is valued correctly.

We can appoint a Auditors expert to value the intangible asset at the current scenario as the expert can
value them by his expert knowledge , the brand name valuation has correctly done or not.

We can ask the management to adjust the difference in the Brands Actual value and the opening
balance should be booked as impairment as per IAS 36 Impairment of assets in the statement of
Financial position during the year ended 20Y0.

If the management is not agreeing to adjust the same in the financial statement we should give a
modified Audit report with the “Except for” regarding the brand valuation as the same misstatement is
Material but not pervasive.

Conclusion

To conclude the Jolie co as a new Audit client need to examined well , opening balances to be verified
and their involve valuation of brands which require Auditor experts .

Audit Manager

Signature

D) Ethical and professional issues raised in the revenue raising suggestion

The Auditor Should perform the Audit with the professional qualities such as integrity, Competence,
Professional Behhaviour , confidentiality , Objectivity .
By advertising in national medias it states that the proifessional behavior and objectivity priciples are
not followed. The auditor should act as independedt and free from influence , In the advertisement they
states that if not satisified they offer a second opinion on the Audit report, which shows the professional
competence of the Auditor is questionable,

As per the ethical principles of the ACCA code of Ethics the Auditor cannot advertise the Audit facilities
in such a manner by offering discout and attracting new clients by not showing the professiuonal
behavior.

High fee dependency and second opinion shows that the Auditor is keenly seeking audits and the
objectivity and integrity threat can be seen this scenario.