Nutri (Pty) Ltd is a company which manufactures and distributes a range of industrial chemical products...

    

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Nutri (Pty) Ltd is a company which manufactures and distributes a range of industrial chemical products to other manufacturers. You are the audit manager on this audit. While conducting risk assessment procedures on the 31 March 2022 audit, you gathered the following information, about the company: 1. During the year Edgar Hoover, the newly appointed chairman of the board, requested the resignation of the financial director John Dillinger a conservative, independently minded, and well-respected chartered accountant who had been at Nutri (Pty) Ltd for some years. John Dillinger had angered the chairman by refusing to implement certain accounting policies which would improve the performance of the company as reflected in the financial statements. As their working relationship had become untenable, John Dillinger resigned. John Dillinger has sued the company for R5 million in respect of monies due to him when he left the company some months prior to year-end. 2. John Dillinger had been replaced by Floyd Nelson, a young and inexperienced but aggressive chartered accountant whom the chairman had recruited from another company. Edgar Hoover also appointed Floyd Nelson as chairman of the audit committee. 3. Under the direction of Edgar Hoover, the company has recently set up several joint ventures and other business alliances and a fair number of transactions have taken place between them and Chemtrade (Pty) Ltd. Documentation relating to these entities and transactions appears to be minimal. 4. The valuation of inventory at year-end had in prior years been conducted in conjunction with the external auditors, by an independent specialist chemical engineer on the insistence of John Dillinger to satisfy audit requirements. For the current year Floyd Nelson decided against this practice as he deemed it unnecessary, stating that the auditors don't make the rules here; they must accept the valuation arrived at by myself and the production manager. 5. During the financial year, the company ceased production of a particular range of chemicals which it only exported to Europe. Due to the slow economy in Europe, the orders for this range of chemicals have virtually ceased. However, the company has a very large stockpile of this range of chemicals and the plant and equipment used in the manufacture of these products have been lying idle for the seven months prior to the year-end. According to the production manager, there are no plans to commence with production of this range or to adapt the plant and equipment to manufacture another type of chemical. 6. During the financial year, a government environmental agency filed a lawsuit against the company for the material sum of nearly R10 million for what it describes as 'extensive environmental damage to certain wetland areas. The matter is being handled by the company's lawyers, but at the financial year-end the matter was unresolved. Should the decision go against the company, there could be serious consequences, other than financial, for the company, for example loss of certain manufacturing licenses. 7. An analysis of the accounts receivable balance at year-end revealed that the percentage of debt owed by foreign debtors (in South American companies) had increased substantially compared to the prior year, mainly because the company's trading partners are taking considerably longer to pay than they had in prior years. Management attributes this to ongoing political and social unrest in these countries. 8. The company has various financial applications that interface with one another. These financial applications manage various ledgers and components of the business. The financial manager is of the opinion that this in itself brings segregation of duties. YOU ARE REQUIRED TO: Evaluate, based on the information given above, the risk of material misstatement at financial-statement level and at assertion level for the year-end audit of Nutri (Pty) Ltd. Where you believe that there is risk of material misstatement at assertion level, you must identify the assertion(s) to which the misstatement relates. Nutri (Pty) Ltd is a company which manufactures and distributes a range of industrial chemical products to other manufacturers. You are the audit manager on this audit. While conducting risk assessment procedures on the 31 March 2022 audit, you gathered the following information, about the company: 1. During the year Edgar Hoover, the newly appointed chairman of the board, requested the resignation of the financial director John Dillinger a conservative, independently minded, and well-respected chartered accountant who had been at Nutri (Pty) Ltd for some years. John Dillinger had angered the chairman by refusing to implement certain accounting policies which would improve the performance of the company as reflected in the financial statements. As their working relationship had become untenable, John Dillinger resigned. John Dillinger has sued the company for R5 million in respect of monies due to him when he left the company some months prior to year-end. 2. John Dillinger had been replaced by Floyd Nelson, a young and inexperienced but aggressive chartered accountant whom the chairman had recruited from another company. Edgar Hoover also appointed Floyd Nelson as chairman of the audit committee. 3. Under the direction of Edgar Hoover, the company has recently set up several joint ventures and other business alliances and a fair number of transactions have taken place between them and Chemtrade (Pty) Ltd. Documentation relating to these entities and transactions appears to be minimal. 4. The valuation of inventory at year-end had in prior years been conducted in conjunction with the external auditors, by an independent specialist chemical engineer on the insistence of John Dillinger to satisfy audit requirements. For the current year Floyd Nelson decided against this practice as he deemed it unnecessary, stating that the auditors don't make the rules here; they must accept the valuation arrived at by myself and the production manager. 5. During the financial year, the company ceased production of a particular range of chemicals which it only exported to Europe. Due to the slow economy in Europe, the orders for this range of chemicals have virtually ceased. However, the company has a very large stockpile of this range of chemicals and the plant and equipment used in the manufacture of these products have been lying idle for the seven months prior to the year-end. According to the production manager, there are no plans to commence with production of this range or to adapt the plant and equipment to manufacture another type of chemical. 6. During the financial year, a government environmental agency filed a lawsuit against the company for the material sum of nearly R10 million for what it describes as 'extensive environmental damage to certain wetland areas. The matter is being handled by the company's lawyers, but at the financial year-end the matter was unresolved. Should the decision go against the company, there could be serious consequences, other than financial, for the company, for example loss of certain manufacturing licenses. 7. An analysis of the accounts receivable balance at year-end revealed that the percentage of debt owed by foreign debtors (in South American companies) had increased substantially compared to the prior year, mainly because the company's trading partners are taking considerably longer to pay than they had in prior years. Management attributes this to ongoing political and social unrest in these countries. 8. The company has various financial applications that interface with one another. These financial applications manage various ledgers and components of the business. The financial manager is of the opinion that this in itself brings segregation of duties. YOU ARE REQUIRED TO: Evaluate, based on the information given above, the risk of material misstatement at financial-statement level and at assertion level for the year-end audit of Nutri (Pty) Ltd. Where you believe that there is risk of material misstatement at assertion level, you must identify the assertion(s) to which the misstatement relates.

Answer rating: 100% (QA)

Based on the information provided here is an evaluation of the risk of material misstatement at the financial statement level and at assertion level f... View the full answer