(b) On 1 April 2004 Volcan introduced a ‘reward scheme’ for its customers. The main elemen

(b) On 1 April 2004 Volcan introduced a ‘reward scheme’ for its customers. The main elements of the reward

scheme include the awarding of a ‘store point’ to customers’ loyalty cards for every $1 spent, with extra points

being given for the purchase of each week’s special offers. Customers who hold a loyalty card can convert their

points into cash discounts against future purchases on the basis of $1 per 100 points. (6 marks)

Required:

For each of the above issues:

(i) comment on the matters that you should consider; and

(ii) state the audit evidence that you should expect to find,

in undertaking your review of the audit working papers and financial statements of Volcan for the year ended

31 March 2005.

NOTE: The mark allocation is shown against each of the three issues.

(b) Reward scheme(i) Matters■ If the entire year’s revenue ($303m) attracted store points then the cost of the reward scheme in the year is atmost $3·03m. This represents 1% of revenue, which is material to the income statement and very material(31·9%) to