Assignment - Auditing ACCT3000
1. During the last 12 months, Pacific Water Designs Ltd (PWD) profits have increased because of a significant drop in the cost of component parts from Germany as well as the introduction of cost saving measures at the Perth assembly plant. PWD is involved in the design and construction of water purification equipment. Sarah Button, the CEO of PWD, is very confident that profits will continue to improve. Her optimism is based on the company's increased sales to Asian and European countries that now equate to 65% of PWD's total sales. One of the significant factors behind the improved sales to these countries is the fact that international customers can settle their outstanding debts in their own foreign currency, as well as the fact that the contract situation in overseas countries is often less politically contentious. PWD is aiming to double its turnover over the next 2 years.
2. You are recently appointed as the auditor of Ainsworth Pty Ltd, a paint manufacturing company. Last year the board members decided that they need to expand their business and took the decision to establish two more factories in Albany and Mandurah. They have already consulted with their bank regarding the loan but since they have struggled to meet some debt covenants of the past loans, the bank is quite reluctant to approve any new loans. However, the directors are quite confident that they will find an alternative financial institution/bank and if everything goes according to plan, the business will be right on track very soon.
3. Hillgrove Pty Ltd (HPL) has been running their timber manufacturing business in Australia for the last 20 years. The transactions with both of their suppliers and distributors have been managed manually and the old trustworthy employees of this company have been able to perform the job to the satisfaction of the management and auditors. However, several of their key employees in the accounting department retired and left the company last year and with the growing volume of their business, they are now facing some significant issues in terms of keeping adequate accounting records and maintaining a proper accounting database. This year, HPL has decided to install a new accounting software to manage their transactions and documentation.
Required
(a) Identify and discuss why the above situation represents a risk.
(b) By applying auditing knowledge, identify the main account or group of accounts affected by this risk in the audit plan.
(c) Identify how the audit plan will be affected by the risks and recommend specific audit procedures to address these risks.
EXEMPLAR FOR ASSIGNMENT
Your firm has just been appointed as the auditor of BNZ Pty Ltd, a manufacturing company. Consider the following situation:
1. A new competitor entered the market four months before year end and since that time, selling prices have fallen significantly. Your inquiries have revealed that the industry expects heavy discounting to continue for the whole next year.
Required
(a) Identify and discuss why the above situation represents a risk.
(b) By applying auditing knowledge, identify the main account or group of accounts affected by this risk in the audit plan.
(c) Identify how the audit plan will be affected by the risks and recommend specific audit procedures to address these risks.