Test your un rstanding 1—Yate Co

You are an audit manager in Satey & Co, a firm of chartered certified
accountants responsible for the audit of Yates Co, a new audit client.
Yates Co is a private national haulage and distributioncompany with
over 2,000 employees. This long-established company provides
refrigerated, bulk and heavy haulage transport services to time-sensitive
delivery schedules. Planning of the audit for the financial year ended
30 June 20X5 is about to commence.
You are provided with the following exhibits:
1 An email you have received from the audit engagement partner.
2 Draft financial informationfor the year ended 30 June 20X5.
Required:
Respond to the instructions in the email from the audit engagement
artner. 21 marks
earch CED @ 340C A
 Required:
Respond to the instructions in the email from the audit engagement
partner. (21 marks)
Note: The split of the mark allocation is shown in the partner's email
(Exhibit 1)
Professional marks will be awarded for the presentation and logical flow
of the briefing notes and the clarity of the explanations provided.
(4 marks)
(Total: 25 marks)

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Exhibit 1 —Email from audit engagement partner

He IIO
I have provided you with some information in the attached exhibit which
you should use to help you with planning the audit of Yates Co for the
financial year ended 30 June
Using the informationprovided in Exhibit 2 1would like you to prepare
briefing notes for my use in which you:
(a) Evaluate the risks of material misstatement for the audit of Yates Co
for the year ended 30 June (12 marks)
(b) Design the audit procedures to be performed in respect of:
(i) Leases (5 marks)
(ii) Restructuring provision (4 marks)
Thank you
Exhibit 2 —Draft financial information for the year ended 30 June
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you should use to help you withplanning the auditof Yates Co for the
financial year ended 30 June
Using the information provided in Exhibit 2 1would like you to prepare
briefing notes for my use in which you:
(a) Evaluate the risks of material misstatement for the audit of Yates Co
for the year ended 30 June 20X5. (12 marks)
(b) Design the audit procedures to be performed in respect of:
(i) Leases (5 marks)
(ii) Restructuring provision (4 marks)
Thank you
Exhibit 2 —Draft financial information for the year ended 30 June
20X5
Statement of profit or loss
Notes 30 June 30 June
20X5 20X4
Dra Actua
Exhibit 2 —Draft financial information for the year ended 30 June

Statement of profit or loss

Notes 30 June 30 June
20X5 20X4
Dra Actua
$m
Revenue 1 161.5 144.4
Operating expenses 2 (156.7) (143.00
Operating profit 4.8 1.4
Finance costs (2.9) (2.2) )
Profit/loss before tax 1.9 (0.8)
Statement of financial position
30 June 30June
20X5 20X4

on-currentassets $m $håJ
ntangible assets 3 7.2 6.2]
4 78.9 830
86,1 89.31

Currentassets
nven ones 0.6 .5
ra e recelva
as an cas e uwae s 3.

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 Current assets)
nven ones

Cash and_casWequivalents 2.83

177

TotaläSsets 106.oJ

EOüitVäfidJiåbilitiéS
EqUltYJ
Sharecapv 5.0 25.0
Rétäineeearnings

ta equity 63,4 66b

to 340C
 rovislons 5 12.7
ease liabilities 6 5.4 4.41

18.1 18.51

CurrentTåbiIities
Trade and other payables 22.3 21.0

22.3 21.0

Ota la I ltles 40,4 39.5

Note 1: Revenue
Revenue is net of rebates to major customers that increase with the
volume of consignments transported. Rebates are calculated on
cumulative sales for the financial year and awarded quarterly in arrears.
Rebates due to be paid are included in liabilities, see note 5.
Note 2: Operating expenses
20X5 20X4
$m $m
Materials expense 88.0 74.7
Staff costs 40.6 35.6
Depreciation and amortisation 8.5 9.5
Other expenses 19.6 23.2

156.7 143.0
Materials expense includes fuel, repair materials, transportationand
vehicle maintenance costs.
Note 3: Intangibleassets
Purchased intangible assets including software and industrial licences,
are accounted for using the cost model.
Internally generated intangible assets, mainly software developed for
customers to generate consignment documents, are initiallyrecognised
at cost if the asset recognition criteria are satisfied.
Note 4: Tangible assets
20X5 20X4
$m $m
Property 55.1 57.8
Vehicles and transport equipment 16.4 16.0
Other equipment 7.4 9.3
Note 4: Tangible assets
20X5 20X4
$m $m
Property 55.1 57.8
Vehicles and transport equipment 16.4 16.0
Other equipment 7.4 9.3

78.9 83.1

The following depreciation rates are applied on a straight line basis:

• Property —5 years (lease term)
Vehicles and transport equipment 3 —8 years
Other equipment 3 —15 years
 Note 5: Provisions
20X5 20X4
$m $m
Restructuring 9.0 10.8
Rebates 3.7 3.3

12.7 14.1

The restructuring provision relates to redundancies and other

obligations arising on the closure and relocation of distributiondepots in
December 20X3.
Note 6: Leases
Yates Co leases its head office building and distributionwarehouse.
Both leases were taken out at the same time and are for an initial period
of five years with an option to extend for a further five years. Yates Co
intend to exercise the option to extend the leases as they have done
1:15 P
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