You are the manager in-charge on the annual audit of Decimal World Limited (DWL) for the...

 

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You are the manager in-charge on the annual audit of Decimal World Limited (DWL) for the year ended December 31, 2009. DWL is a leading manufacturer of electrical appliances. 35% of its shares are held by Binary Pakistan Limited (BPL). However, with the help of some consenting shareholders, BPL has been able to nominate 5 out of 8 directors on the Board. During the planning phase of the audit you became aware of the following matters: a) A foreign investor has made a public offer to purchase 51% shares of DWL at a price of Rs. 13 per share. The share price has ranged between Rs. 12 to Rs. 14 per share during the past six months. b) The company's statement of financial position includes a deferred tax asset of Rs. 30 million on account of unutilized tax losses which have accumulated during the loss making period 1999-2004. The management is of the view that future taxable profits would be sufficient to utilize the available tax losses. c) DWL has established an e-commerce division to sell its products through internet. This new division is administered centrally by the head office. This step has been quite successful as the online sales have risen to 20% of the total sales during the year. Required: Identify and explain the audit risks which the auditor should consider while planning the audit of DWL. Also highlight the key areas on which the auditor should place emphasis upon, to address the above risks. (20 Marks) You are the manager in-charge on the annual audit of Decimal World Limited (DWL) for the year ended December 31, 2009. DWL is a leading manufacturer of electrical appliances. 35% of its shares are held by Binary Pakistan Limited (BPL). However, with the help of some consenting shareholders, BPL has been able to nominate 5 out of 8 directors on the Board. During the planning phase of the audit you became aware of the following matters: a) A foreign investor has made a public offer to purchase 51% shares of DWL at a price of Rs. 13 per share. The share price has ranged between Rs. 12 to Rs. 14 per share during the past six months. b) The company's statement of financial position includes a deferred tax asset of Rs. 30 million on account of unutilized tax losses which have accumulated during the loss making period 1999-2004. The management is of the view that future taxable profits would be sufficient to utilize the available tax losses. c) DWL has established an e-commerce division to sell its products through internet. This new division is administered centrally by the head office. This step has been quite successful as the online sales have risen to 20% of the total sales during the year. Required: Identify and explain the audit risks which the auditor should consider while planning the audit of DWL. Also highlight the key areas on which the auditor should place emphasis upon, to address the above risks. (20 Marks)

Answer rating: 100% (QA)

To create a riskbased plan the auditor must consider two types of risk a individual eventsrisks and ... View the full answer