Adolfo, Adolph Cyril G.

9:00-10:30MW

2-22-16

Audit Planning Memo

1

Objectives of the engagement

Our audit of the financial statements of Fadeaway Jumpers Inc., will comprise of the
financial statements as of January 31, 2016, statement of comprehensive income,
statement of changes in equity, statement of cash flows for the year ended and the notes
comprising a summary of significant policies and other explanatory information. Our
audit will be conducted with the objective of expressing an opinion on the financial
statements. Also, the companys debt agreement with Chase Down Blockers Inc., requires
the company to furnish the lender a report by our firm on the companys compliance with
various restrictive debt covenants.
2

Background Information

Fadeaway Jumpers Inc. trades basketball footwear of different brands all over the world.
The company has also begun manufacturing their own line of basketball footwear to be
sold as a product to its customers. The companys primary competitive strategy is to
maintain a high level of expertise on basketball footwear and also excellent customer
services.
The market for basketball footwear products is highly competitive. Fadeaway Jumpers
Inc. competes with large retailers of basketball footwear such as Slam Dunkers Inc. and
Out of Bounds Inc. The company also competes with other value-added who provide
their own line of footwear to their customers. To effectively compete with these
companies, the company must be able to obtain top of the line inventories on a timely
basis. Because the company does not have the buying power that their competitors do, it
generally must charge a higher price for its products. Its customers are willing to pay the
higher price because of its competencies. The market for basketball footwear is very
sensitive to economic conditions.
A. Corporate/ Organizational Structure

Work that will require specialist

Since the accounting professionals under the audit firm is not equipped with enough
knowledge about the law, the firm sees fit to employ the services of an expert in the form
of a lawyer to help in one of the objectives of the audit engagement which is to examine
the compliance of the company with its various debt covenants.
ISA 500, Audit Evidence confirms that if the information to be used as evidence has been
prepared using the work of a managements expert, then the auditor should:
evaluate the competence, capabilities and objectivity of that expert
obtain an understanding of the work of that expert
evaluate the appropriateness of that experts work as audit evidence for the relevant
assertion.
4

Risk Factors

Several factors affect the risk of this engagement including:

 As described above, Fadeaway Jumpers Inc. is a very competitive business that is

sensitive to economic conditions.
Fadeaway Jumpers Inc. is a closely held company owned by five stockholders: Dirk
Nowitzki, Zaza Pachulia, Deron Williams, Chandler Parsons and Wesley Matthews.
Dirk and Zaza are active members of the companys board of directors. None of the
owners take an active part in the business.
Audited financial statements are required by Chase Down Blockers Inc. as part of the
companys line of credit agreement.
The company has earned profits for the last few years, and it does not appear to be
having any financial difficulties.
These factors indicate that the engagement to audit Fadeaway Jumpers Inc. has a
moderate risk only.
5

Deliverables

A. Statutory Accounts
The statutory accounts will be general purpose financial statements for the financial year
ended January 31, 2015, prepared in accordance with the Philippine Accounting
Standards (as they apply to local governments and not-for-profit entities), other
authoritative pronouncements of the Philippine Accounting Standards Board and the
financial reporting provisions.
B. Grants
Grants received by the local government, depending on its nature, are required to be
audited and to provide a Grant Acquittal report demonstrating that the Company has met
all obligations in respect of discharging the grant in accordance with the Terms and
Conditions of its Funding/Grant Agreement. The Auditor is required to form an opinion
that the receipts and payments are true and fair and that the Terms and Conditions of the
Funding/Grant Agreement have been adhered to. The Grant Acquittals have different
reporting deadlines which need to be adhered to in order to receive funds on time and in
the near future. We will complete audits of grants as and when required to meet the
Companys reporting obligations.
C. Management Letter
Significant findings, emerging issues and their recommended resolution that arise during
the audit will be progressively discussed and communicated to the relevant departments
and the Manager of Financial Services. Any weaknesses in controls, which may be
identified during the current year audit, will be highlighted in the management letter
following the conclusion of the preliminary and final audits. Prior year management letter
points, if any, will be followed up as part of the current year audit procedures.
D. Other Deliverables
Entrance interview with AFC
The entrance interview will be held with the Audit and Finance Committee (AFC) and
will mainly comprise the presentation and discussion of the Audit Planning Memorandum

(APM).
Closing meeting with CEO
Significant accounting issues and findings noted during the final audit will be discussed
with the Chief Executive Officer (CEO).
Exit interview with Audit Committee
The exit interview will comprise discussion of any significant matters, statutory accounts,
management letters and any improvements for future audits with the Audit Committee.
6

Proposed timetable, staffing and allocation of roles and responsibilities

The following are the tentative dates of importance for the audit:
Task
Date
Begin interim audit work
December 17, 2015
Complete interim audit work
December 21, 2015
Issue management letter on interim work
December 31, 2015
Observe physical inventory
January 31, 2016
Begin year-end audit work
February 10, 2016
Complete Fieldwork
February 20, 2016
Closing Conference
February 25, 2016
Issue audit report
March 4, 2016
Issue annual income
March 4, 2016
Issue supplementary report to SEC
March 4, 2016
Issue letter required by financing
March 4, 2016
agreement
Issue updated management letter
March 18, 2016

Staffing time requirements for the engagement are described below:

Engagement Team
Member
Assistant
Senior
Manager
Partner
Total
7

Interim

Final
40
30
6
4
80

Total
60
40
12
8
120

100
70
18
12
200

Engagement Approach

The Firm offers a tailored a risk-based approach, with a strong emphasis on early
planning and how the clients business functions. This enables us to identify key audit
and assurance components and to tailor our procedures to the unique aspects, size and

nature of a clients business and their service requirements based on the risks. Our
approach ensures audit resources are directed at high risk business cycles and resources
are not wasted on trivial balances or issues that will not add value to you as a client. The
result is an efficient and cost effective audit that adds value to your operations.
A. Audit approach for significant and high risk material balances
For all significant and high risk material (HRM) account balances, the engagement
team will identify audit assertions that pose high audit risk (i.e. existence, rights and
obligations, completeness, valuation and cut-off). It is likely that not all the assertions
will be deemed to be high risk. Those assertions that are assessed as low risk within a
high risk account balance will be tested in the same manner as low risk material (LRM)
balances and disclosures.
Test of Controls
Where we determine that an assessed risk of material misstatement at the assertion level
is a significant risk and we intend on relying on the operating effectiveness of controls
intended to mitigate that significant risk, we will obtain audit evidence about the
operating effectiveness of those controls from tests of controls performed in the current
period.
Substantive Procedures
Where we have determined that an assessed risk of material misstatement at the assertion
level is a significant risk, we will perform substantive procedures that are specifically
responsive to that risk.
B. Audit approach for low risk material balances
LRM balances will be audited by analytical procedures and tests of details as necessary.