Mark is the manager of BBB Ltd. (BBB), a computer manufacturer operating in Hong Kong. Mark...

 

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Mark is the manager of BBB Ltd. (BBB), a computer manufacturer operating in Hong Kong. Mark graduated from one of the private universities in Hong Kong three years ago. He secured a job at BBB in 2020. By just looking at his qualification and his capability to manage, BBB granted him the managerial position at the beginning of 2021. Mark is having a hard time at BBB because of the following reasons. First, since he took the management position a year ago, he lacks experience. Second, there is an integrity concern over his recent decisions. Third, the company has the following issues that complicate Mark's managerial roles: a) b) • In previous audits, computer maintenance accounts were intentionally misstated. c) ● ● ● Given BBB is a large company, its tax computation is very complex. To expand its operations, BBB has constructed two ten-story buildings around TST area. This capital expenditure is retained as investment. • BBB opened a major retail outlet in South Korea. ● Unlike the prior years, the company's cash flow for the current year is negative. Mark's reward is more dependent on profitability of the company. Required: ● BBB has various transactions that are part of the normal processes. Expensive computer accessories are stored by BBB in the form of inventory. Under the terms of the contract for sale, BBB undertakes to remedy, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. As a result, provisions for warranty are a material liability. ● Study the above case study and discuss how the issues indicated above could affect the risk of a material misstatement. Assume that it has been set that the overall materiality for the audit of BBB at $50,000. When auditing property, plant and equipment of BBB, can the auditor just select and test assets with a balance more than $50,000? Should assets with a balance less than $50,000 be selected for testing? Discuss your reasons. Assume that BBB manufactured a new laptop, which accounts for more than 30% of BBB's total sales. At a recent world business expo, which was held in Hong Kong, a large number of customers bought this laptop. However, a few days later, more than 80% of the buyers showed interest to return the laptop mainly because its screen did not function properly. Immediately after these complaints, the laptop has been taken off the market temporarily. Discuss the impact of this event on the overall audit plan for the current year audit of BBB? 30 marks 10 marks 10 marks Mark is the manager of BBB Ltd. (BBB), a computer manufacturer operating in Hong Kong. Mark graduated from one of the private universities in Hong Kong three years ago. He secured a job at BBB in 2020. By just looking at his qualification and his capability to manage, BBB granted him the managerial position at the beginning of 2021. Mark is having a hard time at BBB because of the following reasons. First, since he took the management position a year ago, he lacks experience. Second, there is an integrity concern over his recent decisions. Third, the company has the following issues that complicate Mark's managerial roles: a) b) • In previous audits, computer maintenance accounts were intentionally misstated. c) ● ● ● Given BBB is a large company, its tax computation is very complex. To expand its operations, BBB has constructed two ten-story buildings around TST area. This capital expenditure is retained as investment. • BBB opened a major retail outlet in South Korea. ● Unlike the prior years, the company's cash flow for the current year is negative. Mark's reward is more dependent on profitability of the company. Required: ● BBB has various transactions that are part of the normal processes. Expensive computer accessories are stored by BBB in the form of inventory. Under the terms of the contract for sale, BBB undertakes to remedy, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. As a result, provisions for warranty are a material liability. ● Study the above case study and discuss how the issues indicated above could affect the risk of a material misstatement. Assume that it has been set that the overall materiality for the audit of BBB at $50,000. When auditing property, plant and equipment of BBB, can the auditor just select and test assets with a balance more than $50,000? Should assets with a balance less than $50,000 be selected for testing? Discuss your reasons. Assume that BBB manufactured a new laptop, which accounts for more than 30% of BBB's total sales. At a recent world business expo, which was held in Hong Kong, a large number of customers bought this laptop. However, a few days later, more than 80% of the buyers showed interest to return the laptop mainly because its screen did not function properly. Immediately after these complaints, the laptop has been taken off the market temporarily. Discuss the impact of this event on the overall audit plan for the current year audit of BBB? 30 marks 10 marks 10 marks

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