Question 1: You are the audit senior on the Wendig Limited (Wendig) audit and have commenced planning for the 2017 audit. You have been able to obtain the following information concerning various segments of the business: A. Although fairly voluminous, purchase transactions at Wendig are not complex. Inventories are tightly controlled so that overstocking and obsolescence are normally not a problem. Inventory, although not as liquid as cash, is subject to theft. At Wendig, finished packaged products are shipped immediately to customers, although large quantities of purchased merchandise are maintained on hand. The personnel handling purchases and inventory transactions are, in general, competent. Access to the warehouse is unrestricted. B. The sales transactions are not particularly complex at Wendig. No major estimation is involved except for allowance for doubtful debts. The persons processing revenue and trade receivables transactions are thoroughly familiar with the procedures and are generally competent. Sales transaction processing does, however, entail the completion of many transactions. Competition from overseas is becoming an issue, and because of the poor general economic conditions, some customers have requested extensions of time to pay. C. There are generally few fixed asset transactions. The transactions are often not complex but an element of risk can be introduced when management has to make decisions concerning whether to capitalise or expense items. Property, plant and equipment (PPE), being less liquid than other assets, are generally not subject to theft. In recent years a number of PPE items have been manufactured in-house. You have noticed as a result of your analytical procedures, that repairs and maintenance expense has dropped considerably in the last two years. Asset registers are maintained, and staff are generally competent. D. Although not complex, the volume of trade payables transactions is quite high. There is a risk with trade payables balances that personnel may fail to record them in the books as the company has applied to the bank for an increase in its overdraft and wants to impress the bank with a strong current ratio. At Wendig a request form is first prepared for all items that are to be paid through the cash disbursements system. The previous trade payables clerk, who had been with the company for eight years, left in December 2016. A new clerk was hired bit s not yet thoroughly familiar with the procedures. Required: For each of the above given situation: 1. Determine any factors leading to significant audit risks with reference to the relevant facts and provide justification. (8 Marks) 2. Identify the key account balance, related assertion at risk with justification. (12 Marks) (Total Marks 20)

Question 2: For each of the following independent situations, you are in the planning phase of the audit and have come across with the following information: 1. B&S is a merchandising company. The company has been doing business in Australia for the last 20 years. The accountant of B&S has been notorious for finding gaps in the legislations in order to make its clients' financial statements look presentable as desired by the clients themselves. In the past few years, B&S has always been required by the Australian Tax Office to provide additional supporting information after the lodgement of its tax returns. 2. Zen runs a chain of superstores in Australia. Zen is highly dependent on the IT system to run its transaction processes with the suppliers. Moreover, to save time, each of Zen's individual stores can raise their own inventory requisition without any authorisation from the central purchase department. 3. Neptune manufactures generators for domestic users. Seven years ago Neptune manufactured a generator far superior to any of its competitors at half the price. It has therefore dominated the market over the past few years. However, recently one of Neptune's main competitors introduced a new generator to the market. It can produce electricity at twice the amount of Neptune's generator by spending same amount of fuel and hence is superior to Neptune's generator. However, Neptune's CEO is quite optimistic about the whole situation. He told you that a pricing strategy will soon be implemented to defeat the respective competitor with a lower price. 4. Thomson has planned to close an inefficient factory in country New South Wales before the end of current year. It is expected that the redeployment and disposal of the factory's assets will not be completed until the end of the following year. However, the financial controller is confident that he will be able to determine reasonably accurate closure provisions. 5. To help achieve the budgeted sales for the year, Richardson is about to introduce bonuses for its sales staff. The bonuses will be an increasing percentage of the gross sales made, by each salesperson, above certain monthly targets. Required: For each of the scenarios above, explain how the components of audit risk (inherent, control or detection risk) are affected. (Total Marks: 10)