As the audit senior on the Protect Like Us Ltd (PLU) audit client, you are beginning the
Question:
As the audit senior on the Protect Like Us Ltd (PLU) audit client, you are beginning the planning of the audit for the year ended 30 September 2019. Protect Like US became an audit client of your audit firm in January 2019 following an extremely competitive tender to secure the audit work.
As the audit senior on the Protect Like Us Ltd (PLU) audit client, you are beginning the planning of the audit for the year ended 30 September 2019. Protect Like US became an audit client of your audit firm in January 2019 following an extremely competitive tender to secure the audit work.
PLU is a mask manufacturer based in Jamaica and has been trading for over 15 years. It operates from two locations, a factory where the masks are made and head office where the administration is carried out. Completed inventory orders are despatched from both the factory and the head office.
To reduce cost, PLU now imports its raw materials from one sole supplier based in China.
PLU sells it’s finished products to small independent retailers and to one major boutique chain. The boutique chain often requires additional deliveries at short notice; therefore PLU has to maintain a high level of inventory should this occur. Credit terms are normally 30 days, but the boutique chain is given 60-days credit terms.
PLU had previously outsourced its internal audit department but cancelled this contract in May 2019 in a further effort to cut costs. The internal audit department used to perform monthly bank reconciliations and a monthly credit check on the controls over inventory dispatch at each location.
Required
1. From the information provided, describe THREE audit risks and explain the auditor’s likely response to each risk in planning the audit of PLU. (6 marks)
2. Describe the two levels of materiality that are considered by the auditor in planning the audit and identify TWO factors that would impact each level.
Expert Answer:
Audit risks Identified Response Lack of Internal Audit team Since the contract is suspended Less rel... View the full answer
