The Chief Executive Officer of Panther plc has approached your audit firm to acquire Panther as a new client. Panther plc is a company that manufactures uniform handcrafted sports cars for export to the USA, which traditionally takes about 63% of production, and more recently to China, which accounts for 24% of production.

However, over the past year, new strict exhaust emission laws in California have made it impossible to sell cars in that state without expensive modifications, resulting in delays in delivery. Also, the weakness of the Chinese Yuan against the British Pound made vehicles expensive and sales fell. As a result of these events, stocks of finished vehicles are unusually high and production has been reduced to three days each week.

A dynamic and young Chief Executive Officer has recently been appointed. He admits he has little experience in the car industry, but in recent press news he has promised to reverse recent losses with new strategies, such as building a series of luxury sit-down mowers. Thereupon, the Board of Directors called the Extraordinary General Assembly to a meeting and asked that the previous audit firm be dismissed and your firm replaced.

The new Managing Director also took action to install new management information systems and immediately replaced the old computerized accounting system with an online 'cloud' based system just three months before the end of the year. Accounting staff received some training in the new system, but the recent death of the Financial Advisor hampered the process and as a result, the financial statements draft is likely to come out quite late this year.

Warned of the possible consequences of these events and the impact of extra audit work on audit fee, the Chief Executive Officer said he believed the audit fee had been too high in previous years. He stated that he is looking for a much more fluid and efficient control in the future.

Necessary:

1. Analyze the above situation and identify areas of audit risk that appear to exist in conjunction with Panther plc's audit. 

Given the risks identified above, discuss the impact on the audit work and any issues that may be noted during audit planning.

Explain the purpose of the audit planning and suggest the main content of the audit planning note.

Answer rating: 100% (QA)

Areas of audit risk that appear to exist in conjunction with Panther plcs audit are 1Business Risk The company is facing challenges in production due ... View the full answer