Assignment# One

Due date:Friday 24 September 2021.

Total marks: 150 / 15 percent

Read the text on the case study on Eagle Cliff Ltd and the Australian Wine Industry and attempt the questions below. Refer case studies provided in the attachment.

Question 1 (48 marks)

Identifying and assessing risks of material misstatement through understanding the entity and its operations

Tasks

1.From the information provided in the case study of Eagle Cliff and its environment, identify the business risks that the company is facing for 20x6. Explain why each is a risk and where appropriate the associated risks of material misstatement in this year's financial statements and those in subsequent financial statements.

Use the following table to complete the task. One risk has been provided as an example. (Provide at least 8 other risks) (48 marks). Explain why it is a risk and the risk of material misstatement in the year's financial statement.

Business risk ( 2 marks)

1. Expected large increase in production from local competitors

Why a risk ( 2 marks)

1. Increased domestic competition putting pressure on margins. Increased domestic competition putting pressure on margins.

Risk of material misstatement in this year's financial statements (account balance & assertions of interests) ( 2 marks)

1. Not applicable

Question 2 (49 marks)

Assessing the risk of material misstatement in the sales/accounts receivable/cash receipts.

1.Evaluate the five key strengths and two weaknesses of the sales/accounts receivable/cash receipts system. Relate these key strength and weaknesses to account balances, classes of transactions and key assertions.

Key strength or weaknesses. ( 2 marks)

1. Strength: Approved sales invoice are pre-numbered and the sequence of the numbers is checked each month by the chief financial officer.

Why a strength or weakness.( 2 marks)

1. Allows for reconciliation showing all approved sales are accounted for (completeness), and no unauthorized or duplicate sales are included (occurrence)

Account balances/classes of transactions ( 1 mark)

1. Accounts receivable & Sales

Key assertions ( 2 marks)

1. Existence, Occurrence, Completeness

Question 3 (40 marks)

Respond to assessed risks: Test of control

2.For those key controls identified determined at least five tests of control the auditor would undertake in testing the sales and accounts receivable. (state at least 5 controls)

Key controls(strengths) ( 2 marks)

1. Approved sales invoice are pre-numbered and the sequence of the numbers is checked each month by the chief financial officer.

Account balances/classes of transactions ( 2 marks)

1. Sales & Accounts receivable

Key assertions ( 2 marks)

1. Completeness, Occurrence, Existence

Test of control ( 2 marks)

1. Inspect that sequence check carried out and evidenced each month by the chief financial officer.

Question 4 (13 marks)

Based on your answers for questions 1, 2, 3 and our lecture explain the type of possible substantive testing and major sampling approach that the auditor would use in the substantive testing for the accounts receivable.