Question 6 (10 marks) Part A (6 marks)

The audit partner has asked you to consider the following matters in planning the audit. During a recent visit to the company you obtain the following information.

1. You are aware that there have been reliability problems with the clients products which have resulted in customers making legal claims against the company and refusing to pay for the products.

2. Significant increases in sales have been achieved by attracting new customers and offering extended credit. The new credit arrangements allow customers three months credit (it was previously one month) before their debt becomes overdue. As a result of this change, the aged receivables have increased from 1.5 to 3.9 months.

Required (i) In each situation, which component(s) of the audit risk model is/are affected? Explain

. (ii) Discuss the effects of each situation on planning the audit. (2+4= 6 marks)

Part B (4 marks)

The audit program for the revenue account of a client has been drafted. The following item appears: Item Assertion Detailed audit procedure 1 Occurrence Select a sample of delivery dockets or customer orders and trace the details to the revenue account

Item	Assertion	Detailed audit procedure
1	Occurrence	Select a sample of delivery dockets or customer orders and trace the details to the revenue account

Required:

(i) Does the procedure address the stated assertion? Explain.

(ii) If your answer to (a) is no, explain what audit procedure would be required to address the stated assertion. (2+2= 4 marks)