Your audit client, Storm Homewares, is a retailer which obtains most of its revenues selling tasteful homewares
Question:
Your audit client, Storm Homewares, is a retailer which obtains most of its revenues selling tasteful homewares through its outlets in Australia's major cities. Storm stocks homeware products such as china, cooking utensils, crockery, cutlery, glassware, kitchenware, picnicware and plastic containers.
You are in the process of assessing the risk of material misstatement at the financial report and assertion level as part of your audit planning for the year 2020-21. Through enquiries of management and others, observation and inspection and through performing analytical procedures, you have flagged the following information which in your opinion might affect the risk of material misstatement.
On 31.10.2020, NBA Bank provided Storm with a $900,000 working capital loan at 5.5% interest subject to being provided quarterly financials and Storm maintaining a minimum current ratio of 1.8:1 at all times.
The increased use of online shopping due the pandemic has instigated the move towards setting up an online store. On 05.01.2021, the company engaged ABC consultants to set up its online store. The board has started discussions to close its three loss making stores.
Due to increased competition from major department stores, which largely compete on price, the company decided to heavily discount its merchandise as of 25.02.2021.
Required:
For each of the factors identify whether the given factor would increase, decrease or have no effect on the risk of material misstatement, document the assertions at risk and outline the impact of each factor.
Financial Accounting An Introduction to Concepts, Methods and Uses
ISBN: 978-1133591023
14th edition
Authors: Roman L. Weil, Katherine Schipper, Jennifer Francis