Broadway Ltd imports construction materials and distributes the goods to retailers around the country. Broadway Ltd has benefited from rising house prices in most capital cities over the past five years which have encouraged homeowners to spend money on house renovations and make a profit on the sale of the property. However, some analysts believe that recent government changes to tax laws will discourage home renovations because it will be more profitable to sell houses unrenovated.

As doubt about its ability to grow its profits in the current year spreads, Broadway’s share price has fallen over the last year. The CEO and other senior management have large bonuses linked to both share prices and company profitability and there is a mood within the company that achieving sales and profit targets this year is vital to avoid job losses at the company.

Broadway has a monthly reporting system for internal management, but the audit team notice that the reports are being issued later in the following month this year than they were last year on the instructions of senior management.

Required

1. Identify why and how the circumstances described above could affect the audit risk assessment.
2. How would you audit Broadway’s closing procedures?
3. What potential errors would be of most interest? Explain.

Answer rating: 100% (QA)

Question 1 According to ISA 610 the external auditor must assess various factors including the internal audit teams technical competence the objectives of their work whether the work was done with due ... View the full answer