Problem
You have been appointed as a senior auditor in charge at Edi & Partners and have observed the following independent and separate audit issues in relation to the external audit of your client Ofdx Ltd.
i. The accounting processes and the related system at Ofdx Ltd did not work and operate efficiently and effectively throughout the first year of the business operations. Subsequently, some of the books of accounts, such as the general ledger, had to be prepared and updated on the basis of some estimates. The estimates were used because the actual accounting data relating to these balances were missing.
ii. Due to the tight financial resources, the board of directors of Ofdx Ltd did not apply appropriate and effective internal control procedures over the collection of business debts. The turnover of debtors was 4 times.
iii. Due to mounting pressures of tough completions of business rivals, Ofdx Ltd has lately moved its manufacturing operation facility of fashion and related clothing business lines out of the main city into regional zones. Although Ofdx Ltd saves about 25% in costs with this strategic move, the manufacturing and production process requires more time than before, which delays the deliveries and has caused the company to lose customers and, consequently, sales.
Task
Explain the implications of each of the above independent and separate audit issues on your assessment and evaluation of the related audit risk. You also need to explain the implications on the materiality level and the audit strategy employed.