Audit

Welcome to our ‘Audit - give it a go’ activity

This interactive exercise is designed to give you a taste of the work we do in audit for our clients - developing your knowledge, understanding, and relevant skills. You’ll be joining a fictional PwC audit team as they work on an exciting new client - a sustainable food supplier called Sustedible, whose vision is to sell fresh, healthy home-cooked meals from their kitchen, nationwide. Remember that the client is fictional, but the issues they face are real.

To complete this activity:

Start by reading the introduction which will help you understand the importance of audit and the role of an auditor.
Download the project book and save a copy to your computer.
Scroll down on this page to review and complete three tasks for the client. For each task, you’ll see instructions from your team, supporting documents and evidence from the client. You can use the project book to record your answers.
After you’ve completed the tasks, review the debrief slides. Here you can find answers to the tasks which will help you reflect on the work you’ve completed. You don’t need to submit your project book to us after the activity.

Get started

Read introduction

Download project book

Task one - PESTLE analysis

As auditors, it's important that we understand the issues impacting our clients. In this task, you’ll conduct some client research - known as a PESTLE analysis. In doing so, you will better understand the client, the industry they work in and any wider issues that are impacting them. To complete task one, review the below client information and read the email from your manager, Huan Fan. Then use your project book to work through the PESTLE analysis.

sustedible

Sustainable, healthy meals from our farm, to your table

We’re a family of serious foodies; we live and breathe it. We’ve been sustainably farming and serving our local community with healthy, organic food for generations. In our home, the food comes straight from the field, to the kitchen. We love comfort food that’s fresh, delicious and, most importantly, sustainable. Meals that are as healthy as they are tasty. We know that’s important to you too. That’s why we decided to send our meals straight from our farm, into your kitchen.

All our meals are prepared right here on our farm, where we grow our own veg too. We work with the best, local suppliers to source the rest of our ingredients, then cook up a storm in our kitchen.

Whether you’re looking for a one off box for an extra special dinner party, or a regular selection of home cooked dishes to feed your family, all of our meals are delivered the very next day so you can be sure your food is as fresh as possible.

From: Huan Fan

Subject: More client info

Hi,

Welcome to the team. I’ve attached some guidance on how to complete a PESTLE analysis. Here’s some additional background info on Sustedible you might find useful.

The client has been working with social media influencers and asked them to distribute one-time-only discount codes. The client has given out free boxes to the influencers as a gift in exchange for promotion.
Chester and Fran (co-owners) employ 22 people.
The meals are ready meals and packaging is recyclable with the exception of the plastic film.
They source meat from a farm called Lakeland Co. in Cumbria.
They source seafood and fish from a fishmonger called Fishy.
Chester and Fran told us they’d been experiencing some issues with their e-commerce platform recently.

Thanks,
Huan

Our purpose is to build trust in society. In audit, we do this by ensuring that our clients’ financial statements are true and fair, providing decision makers with information they can trust and giving investors (e.g. banks, businesses) and society confidence. So it’s vital that we understand the way our clients operate, their industry, and any wider issues that may impact their business. We can do this by completing a PESTLE analysis.

Read the below and consider which factors in each category you think might affect the client. You can do your own research if you wish and then use your project book to make note of any key issues and considerations.

Political: Government controls and influences over industry or the wider political landscape. Government factors may be legislation or policies, such as taxation.

Economic: The economic environment may affect how a company prices their products or influence the supply and demand model, e.g. inflation and interest rates, foreign exchange rates.

Social: Demographics and culture can impact the industry environment by influencing peak buying periods, purchasing habits, and lifestyle choices, such as health and the media.

Technological: Innovations in technology may affect the market and consumer choices and buying power, such as communication, research and development.

Legal: Legal and regulatory environment can affect the policies and procedures of an industry, and can control employment, safety and regulations.

Environmental: Relating to the physical environment and to general environmental protection requirements, such as climate and agriculture

Task two - Audit procedures

Auditors complete a number of tests to evaluate whether the information their client has provided is true and accurate. For this task, you'll conduct a stock count and have a go at some audit procedures, looking at the client’s records and considering risk.

From: Huan Fan

Subject: Audit procedures

Thanks for working on the PESTLE analysis, it’ll be useful context for our final statement. I’ve been pulled into an urgent meeting for another client so I can’t finish the audit procedures for Sustedible ahead of our meeting tomorrow. Charlotte mentioned that you’re able to help, which is much appreciated.

There are a few tasks which still need to be completed:

Testing the amount of stock: there’s a sample of inventory we still need to count - can you complete the stock count and verify it against the client’s count? You may need to check each individual item number.
Testing the value of stock, Net Realisable Value (NRV): Please could you record how much the inventory should be valued at in the financial statements?
I’m not sure whether the information from the client looks right, do you notice anything suspicious or strange? Are there any risks here? Please could you write a brief summary of any risks you identify and our role as auditors in dealing with those risks? For example, let me know if you noticed any discrepancies or incorrect data based on the prior tasks that I should be aware of.

Thanks so much for your help.

Huan

Stock sample

Chicken Tikka Masala

001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 | 001-1000 |

Lamb Ragu

001-1001 | 001-1001 | 001-1001 | 001-1005 | 001-1001 | 001-1001 | 001 1001

Creamy Chicken Tarragon

001-1002 | 001-1002 | 001-1002 | 001-1002 | 001-1002 | 001-1000 | 001-1002 | 001-1002 |

Aubergine Lasagne

001-1003 | 001-1003 | 001-1009 | 001-1009 | 001-1003 | 001-1003 |

Lentil Chilli

001-1004 | 001-1004 | 001-1004 | 001-1004 | 001-1004 | 001-1004 | 001-1004 | 001-1004 |

Proper Mash

001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 | 001-1008 |

Mixed Salad

001-1001 | 001-1011 | 001-1011 | 001-1011 | 001-1011 | 001-1011 |

The next step is for us to test the value of the stock.

The appropriate method to calculate the value of stock is to use the lower of historic cost and net realisable value. We therefore need to check that the organisation has followed this method.

Historic cost is an item’s original cost, when bought by the organisation.

Net Realisable Value (NRV) is the price that can be achieved on selling an item, less an estimate of the costs involved in its sale:

NRV = selling price - marketing costs - modification costs to sell

To complete this task you need to verify the client’s valuation of their sample of inventory which can be found on the “Inventory” tab.

You will need to input the required data into your project book in task 2b:

Net Realisable Value for mains and sides (what is this figure based on the formula provided on the right hand side of the page)

Total Historical Value (Quantity x Historical Value)

Total NRV (Quantity x Net Realisable Value figure which you calculated previously, which will be different for mains and sides)

Total Inventory Value (for each item, determine which is the lower figure between the Historical Value in the first column and the NRV in the second column. You might want to highlight the appropriate figure to keep track. Then, add up the highlighted figures to get the total inventory value. This means you’ll be adding up some figures from the Historical Value column and some figures from the NRV column)
Analysis and outcome (answer the questions on the inventory value and if Sustedible’s valuation is correct)

Item	Quantity	Historical value
Mains
Chicken Tikka Masala	75	£1.50
Lamb Ragu	34	£2.10
Creamy Chicken Tarragon	46	£1.33
Aubergine Lasagne	14	£0.98
Lentil Chilli	24	£1.05
Prawn Red Curry	35	£2.75
Traditional Fish Pie	35	£2.45
Sides
Proper Mash	75	£0.86
Triple Cooked chips	80	£0.97
Fresh Greens	56	£0.84
Glazed Carrots	45	£0.82
Mixed Salad	64	£0.79

Marketing costs (incl. social media)
£2 per item

Modification costs (e.g. cooking, preparing, packaging)
£1.50 per main £0.50 per side

Sustedible’s valuation of this sample of this inventory: £932.35

Build your own box (a one off purchase):
£6 per meal, £3 per side

Regular box (a weekly delivery):
£22 for 4 meals, 4 sides
£41 for 8 meals, 8 sides
£60 for 12 meals, 12 sides

Free next day delivery

Task three - Closing the audit

It's time get ready to close the audit down. You'll need to prepare an agenda for a clearance meeting with the client, and reflect on everything you’ve seen to come up with your own auditor’s opinion.

From: Charlotte Harrison

Subject: Closing the audit

Good afternoon,

Thanks for all your work so far, you’re doing a great job and we’re almost at the finish line. We’ll shortly be meeting with the client’s co-owners for a clearance meeting to ensure that there are no misunderstandings regarding the financial statements, and that any inconsistencies are cleared up.

Did anything come up in the work you did for Huan yesterday?
What do you think of the way the client is reporting?
Do you think they need to tighten up their controls or policies?

Please could you prepare some discussion points for this meeting, covering what we need to discuss with the client before we close the audit?

Following this meeting, we should have everything we need to prepare our final statement. This is contingent on us having sufficient evidence confirming that the client's statements are a true and accurate representation of their business’ performance. Please could you draft a short summary of your own viewpoint?

We can go through everything together when we meet to debrief.

Speak soon,

Charlotte

Well done on completing the ‘Audit - give it a go’ activity.

You can review the suggested answers in our debrief slides. If you didn’t get everything right, don’t worry. This is a fictional client task and we have condensed the processes to give you a small insight into the broad and varied world of audit.

Debrief slides