A- You are auditing a manufacturing company ABC Co. with a profit before tax $2400,000, and the following information comes to light about your client:

1- ABC Co has significant plant and machinery which it uses to make its products. During the year the efficiency of the company’s machinery was improved significantly. This was because a comprehensive review of each piece of machinery was undertaken and an assessment was made as to whether a minor repair, extensive refurbishment or a complete replacement was needed. ABC then took the appropriate action in each case and spent a total of $600,000 in doing so.

2- Following some ratios that obtained from the client, compared with the industry ratios:-

Gross profit[% of total sales]

2018: 42%

2019: 65%

Industry average : 40%

Credit Sales[% of total sales]

2018: 40%

2019: 75%

Industry average : 35%

Receivables Turn over

2018: 4.56%

2019: 2.41%

Industry average : 5.1%

Inventory % of Total assets

2018: 24.7%

2019: 28.2%

Industry average : 23.4%

Inventory Turn over

2018: 2.15%

2019: 1.75%

Industry average : 2.21%

Current Ratio

2018: 2.31%

2019 : 1.15%

Industry average : 2.35%

Requirement:

1- Considering the audit risk in planning the audit procedures, explain the main issue/s that should be focused on. “what are the main material misstatements risks that you should be prepared for when planning the audit”??

2- For each issue that you identify above, explain evidence that should be obtained.

B-abc Co. has the following issues:

1- recurring loss at its comprehensive income statement for the last three years.

2- A pending litigation against the company. The amount claimed by the plaintiff is $250,000.

3- The allowance for uncollected debts seems to be inappropriate.

4- The auditor discovers client’s tax evasion.

5- The auditor discovers a fraudulent act committed by a senior employee of the client.

Requirements:

A- For each independent issue identify the auditor opinion with appropriate justification for the opinion. [you should show assumption/s you assumed that make the bases for the opinion]

B- prepare Two different auditor’s report from the above cases.

Notes :-

1. you should show numbers in your reports.

2. You should describe Key Audit Matters.

3. You should include at least an emphasis of matter paragraph & mention the going concern issue in your report.

 

Transcribed Image Text:

2018 Gross profit[% of 42% total sales] Credit Sales [% of 40% total sales] Receivables Turn 4.56% over Inventory % of 24.7% Total assets Inventory Turn over Current Ratio 2.15% 2.31% 2019 Industry average 65% 40% 75% 35% 2.41% 5.1% 28.2% 23.4% 1.75% 2.21% 1.15% 2.35% 2018 Gross profit[% of 42% total sales] Credit Sales [% of 40% total sales] Receivables Turn 4.56% over Inventory % of 24.7% Total assets Inventory Turn over Current Ratio 2.15% 2.31% 2019 Industry average 65% 40% 75% 35% 2.41% 5.1% 28.2% 23.4% 1.75% 2.21% 1.15% 2.35%

Answer rating: 100% (QA)

ANSWER A Planning the Audit Procedures Material Misstatement Risks There are several material misstatement risks associated with the financial statements of ABC Co which should be considered while pla... View the full answer