ACCT7103 : Auditing Case Study - Inherent Risk and Perform Analytical Procedures - Auditing Assignment Help

Assignment Task :

You are a senior auditor of the accounting firm Morning Partners. Your audit team is currently  planning the 2019 audit of NiceWork Limited, a medium sized listed company in Australia that  sells office equipment and stationery. The company buys and re-sells most of its products but  the company also manufactures some products itself. The audit client has a small number of  stores in shopping centres across Australia. This is the second year your accounting firm is  engaged to perform the audit for this client. The financial year under audit ended on 30th June  2020. Past audit work and initial inquiries this year have revealed the following information.  

NiceWork Ltd (hereafter referred to as “the company” or “the audit client”) has had low profit  growth in recent years compared to its competitors. The board of directors hired a new Chief  Executive Officer (CEO) for the company in March 2019 because the CEO is young, ambitious  and is known for aggressive business expansion strategies. The board approved a special bonus  to be paid to the CEO if profit growth for the 2019 financial year reaches 10%.  

The main competitor of the audit client is a large listed company with strong market power so  the competitor can sell products at lower prices. The audit client differentiated itself from the  competitor by offering slightly more expensive but higher quality, more stylish products. The  audit client traditionally focussed on small businesses as its main customers with only a small  number of stores in shopping centres to target individual customers. To facilitate sales growth,  

the CEO launched an expansion plan in July 2019 to open 10 more stores around Australia to  attract more individual customers. A substantial amount of money was spent renting and  renovating these new stores in the first four months of the 2019 financial year (July to October).  The stores opened in November, and the audit client doubled its advertising costs around this  time. Promotional events with large sales discounts were also held regularly between November  2019 and January 2020. Sales around this time period improved by 30%, although profit growth  for the same period was not as marked due to cost increases.

Required  

For the (A) occurrence general audit objective of the sales revenue account, and (B) the  accuracy general audit objective (under the valuation assertion) of the provision for warranty  account, answer all of the following questions in accordance with the Australian Auditing  Standards. You need to perform your analysis using the facts in the case study. 

For each of the two audit objectives of the accounts specified above:  

(1) Assess inherent risk and perform analytical procedures to assess the risk of misstatements  for each of the two general audit objectives of the accounts given above. Analyse and  explain your arguments. In your answer, state one type of fraud that would breach the  general audit objective (i.e., one type of fraud for sales occurrence and one type of fraud for  the accuracy objective of provision for warranty).  

(2) Assess control risk for each of the two general audit objectives of the accounts given above.  In your answer, identify existing internal controls that are relevant to the specified general  audit objectives, and briefly explain how each internal control can prevent/detect  misstatements for the specified general audit objectives for sales and provision for warranty.   

(3) Identify an existing internal control that is specific to each of the two general audit  objectives of the accounts specified above, and design one test of control for each case. The  internal controls and tests of controls must be based on the facts given in the case study.  Briefly explain how the tests of controls specifically check the relevant general audit  objectives of the accounts specified.  

(4) Design one substantive procedure that produces reasonably reliable evidence for each of the  two general audit objectives of the accounts given above. Do NOT use analytical  procedures for the sales occurrence objective.

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