Consider the following independent situations, all of which apply to audits of entities for the year ending 30 June 2020: (i) Slipway Limited, a listed company, has been experiencing declining sales over the last 2 years. Cost cutting has proved dicult due to the high level of imported machinery used in Slipway’s operations and consequently margins have been falling. While the bankers are presently happy to continue providing Slipway with loan facilities, they do expect to see improved results in the next nancial report. Articles about Slipway’s expected nancial results appearing in recent press reports all had quite a pessimistic tone. (ii) Getaway Pty. Limited is a long-established rm which has been operating a boutique hotel in the Blue Mountains for over 20 years. During this time, it has adopted a conservative business strategy that has seen it produce adequate, though slightly unimpressive, results. A new CEO has been appointed to run the rm from 1 January 2020. He has already released his plans for renovating the hotel, despite not ocially serving as CEO yet. You have also heard him discuss the implementation of a new marketing strategy to boost occupancy rates. (iii) Micro Pty. Limited’s bestselling product line is the M4 - a `no frills’ microwave oven designed for domestic use. Over the last 2 months, warranty claims on the M4 have trebled from 1.5% to 4.5% of sales. The problem appears to relate to the glass turntable, which shatters if the oven is constantly used. The average cost of repair has risen by 20% to $200 per claim.

For each of the above independent situations describe the overall impact on audit risk and identify the specific component(s) of audit risk affected.  

Answer rating: 100% (QA)

Answer Situations Specific Component of Audit Risk Overall Impact on Audit Risk i Slipway Limited a listed company has been experiencing declining sales over the last 2 years Cost cutting has proved d... View the full answer