= crprena CASE 3:7 Con (80 Marks : 45 Minutes) You are an based in Somerset West and you for its financial year ending ‘The performance materiay figure set for planing and paring the 2028 aus millon) ‘The following workpapers relating to the auditor's understanding of the entity and its environment are available for your review: Reference Workpaper Number Client overview c-001 Risk register (extract) C115 YOU ARE REQUIRED TO: (a) Considering the performance materiality figure of R1 million, discuss the impact that the information documented on workpaper C-001 will have on your assessment of the risk of material misstatement in the financial statements of Getfit (Pty) Ltd for its financial year ending 30 June 2023, as follows: (i) Attthe financial statement level; and (ii) Atthe assertion level for: + Revenue * Property, plant and equipment + Inventory. (22) (b) Having considered workpaper C-115, state, with reasons, the effect that the information contained in the extract of the risk register provided will have on your audit planning. @) e age 107 Powered by [J CamScanner‘Auorr PLANNING CASE 3: 7 (continued) Client: Getfit (Pty) Ltd Year-end: 30/06/2023 Prepared by: Ken Carbo Date: 12/06/2023 C-001 Reviewed by: Date: 113 Subject: Client overview Nature of business tft (Pty) Ltd operates in the health and fitness industry and owns 12 health clubs, emplo Ene fo hare an 200 mente cca ea The 12 Getfit health clubs offer ‘state-of-the-art’ fitness plan sng pools, and the services of biokineticists and $s operate The remaining four In which case: See ea Eee eee r ub reception desk prior to admission. Introduction of eting in January 2023 it was noted thatthe health and fitness market is fd that he Accordingly, fe f. The rebranded gyms will be opened on 1 August 2023. Management structure ‘The board of directors of Getfi (Pty) Ltd comprises: Managing director ‘Mr Ab Tone Corporate services director Ms Betty Hart Marketing director Mr Sleek Starr The size of the board is sirall' dul to the decentralised management style that is followed. Each health club has a general manager who is responsible for its day-to-day operations. To ensure that the focus of the general managers is aligned to that of the company, they each receive an The num Powered by (@ CamScannerCuapren 3 CASE 3: 7 (continued) Client: Getfit (Pty) Lid Year-end: 30/06/2023 Prepared by: Ken Carbo Date: 12/06/2023 C-001 Reviewed by: Date: 213 ‘Subject: Client overview shareholders ‘The shareholders of Gettit (Pty) Ltd are: XY Venture Capital 49% of the issued ordinary shares 26 high net worth individuals 26% of the issued ordinary shares In 2016 Mr Tone opent lub in Somerset West, and due to his commitment and close involvement, Consequenity, he ‘opened up more health clubs from successful in drawing members, the opening of these clubs i strain on the company’s liquidity. Accordingly, in 2021 Mr Tone (initial saved the company from commercial insolvency by raising equity financing from XY Venture Capital and wealthy individuals (whom he knew as members of the health clubs), but this significantly diluted his shareholding in the company. Therefore, while Getfit (Pty) Ltd currently has adequate liquidity to fund its operations, Mr Tone lost much of his passion for the business and in April 2022 opened up a golf shop in George, where he now spends most of his time. ‘Accounting system Each health club has an accountant and maintains its own accounting records. ‘An off-the-shelf accounting software package suitable for use on a single personal computer was purchased and successfully utilised by the company's first health club in Somerset West. With every subsequent opening of a new health club, the same software was purchased and installed on the accountant’s personal computer at the club. In order to produce the company's annual financial statements: each club accountant prints out the trial balance of the health club (for which s/he is responsible) for the financial year (once all entries and adjustments for the year have been recorded), and scans and emails itto the head office accountant (Mick Muscle); «the head office accountant captures the amounts from these trial balances onto an MS Excel spreadsheet, together with those from the head office trial balance; and + the spreadsheet is then used to ‘add together’ like amounts from each trial balance to arrive at the company's financial information for the year. ‘A firm of professional accountants is appointed to compile the company's financial statements in terms of IFRS. ‘A sophisticated member services software package is also in use, located on the computer server ‘at head office, which maintains data on a membership database and generates the monthly invoices. Each health club's computer system has online access to the member services software package and membership database. Powered by (@ CamScanner‘Auorr PLANNING. CASE 3: 7 (continued) Year-end: 30/06/2023 Client. Getht (Py) Lid Date: 12/06/2023, C-001 Prepared by: Ken Carbo Date aA Reviewed by: Subject: Client overview Key financial information 3wsiz023 | soiei20z2 | 30V6/2021 Root Audited Audited (itmenthsy |__’000 R’000 Revenue 71,950 75,100 70,970 Profit before tax 4,174 3,050 5,280 Membership numbers: Contract members 11,984 12,118 11,744 Month-to-month members l 25,551 19,887 47,187 fa real ‘3415/2023 | 30/6/2022 | 30/6/2021 The company’s major assets Draft Audited Audited eee Notes R000 R’000 R’000 Property, plant and equipment 1 104,187 111,142 120,999 Current assets Inventories 2 900 850 925 Trade receivables 3 3,875 1411 547 Cash and cash equivalents 10.433, 12,388 13,101 Notes 1. The following depreciation rates are applied to the major classes of property, plant and equipment: * Buildings (including leasehold improvements) are depreciated over periods ranging from 25 to 50 years; + Fitness equipment is depreciated over 12 years; and * Office furniture and motor vehicles are depreciated using the wear and tear rates allowed for income tax deduction purposes. 2. Inventories comprise of company branded products (e.g., T-shirts and gym bags) and consumables (e.g. pool chemicals). Other than a few items which are displayed in glass cabinets in the health clubs, the company’s branded products are stored under the counter at health club reception desks, available for sale. 3. The trade receivables balance relates to members who a fees. Powered by re in arrears with their membership camScannercunerend CASE 3: 7 (continued) Client: Geffit (Pty) Ltd Year-end: 30/06/2 3 1023 Prepared by: Ken Carbo Date: 15/06/2023 C-115 Reviewed by: Date: 4" ‘Subject: Risk register (extract) ‘The following are two of the risks, from those documented in the risk register of Gettit (Pty) Ltd, which we have identified will require consideration during the planning of the audit: 5 Likelihood Procedures Risk of | impact | implomentedto | Rest | Risk owner Norsonptane J initiate sk one H M * Obtain legal advice L Managing with health ang bout applicable director safety laws and naan regulations. regulations. «Based on legal advice received, ‘document the laws. and regulations relating to health and safety. For professional w iW | + Allbookings for T_| Cub services (€.9. professional services general massages) rendered should be made at managers not included as part the club reception of the membership desk and the details plans, the fee levied of the booking (incl. is not recorded in member's details) the company's should be recorded records and the ‘on the member cash paid by services system and members are ‘service booking misappropriated by form’ issued. staff. «Staff should not render any services provided with the ‘company's offical ‘service booking form’. * The club general manager should regularly (ona surprise basis) check that: - Thereisa ‘service booking form’ for every member receiving professional services; and = The bookings per the member services system are reconciled to receipts per the ccash book Powered by (@ CamScanner