You are a senior trainee employed by Good Young (GY Inc), an audit firm located in the Erongo Region. You are in your final year of your SAICA training contract and have been interested in joining the technical division of your audit firm. Additional to the normal audit work assigned to you, you also assist in the technical division as and when they require your inputs.
Background of the audit of Simon Nick Holdings Ltd
After following the necessary requirements of client acceptance, GY Inc accepted Simon Nick Holdings Ltd (SNH Ltd) as an audit client during July 2021. You were assigned as the audit senior of GY Inc’s audit of the SNH Ltd group of companies. SNH Ltd forms part of a complex group structure consisting of several joint ventures and subsidiaries and is listed on the Namibia Stock Exchange (JSE).
You have commenced with the planning of the audit for the period ending 31 August 2One of the trainee accountants performed risk assessment procedures to identify risks for the upcoming audit. An extract from working paper A100 is presented to you:

Client: SNH Ltd	Period end: 31 Aug 2021	A100
Prepared by: T Rainee	Date: 14 Aug 2021
Reviewed by:	Date:
Understanding the entity and its environment
Amongst its numerous other business activities, SNH Ltd distributes agricultural machinery to upcoming farmers across the rural areas in Namibia. SNH Ltd imports all their inventory (i.e. machinery) from the United States of America. In order to hedge themselves against the fluctuating exchange rates, SNH Ltd has entered for the first time since their incorporation, into a number of complex Forward Exchange Contracts (FEC’s). In anticipation of the Namibian deteriorating further towards the latter part of 2021, a large consignment of machinery was purchased on 15 July 2021 and delivery is expected close to year end. The terms of shipping the inventory is Free-on-Board (FOB). Occasionally, SNH Ltd manufactures machinery according to client’s specific needs. They use standard costing to determine the cost of these manufactured machinery. Sales have been good in the past number of years, but has shown a significant decline in the current financial year. This is partly due to local manufacturers in Namibia that manufacture similar machinery. In addition, Namibia’s downgrade to “junk” status has resulted in a weaker rand and subsequently resulted in increased costs for SNH Ltd.’s imports. Due to the lack of government support towards emerging farmers in Namibia, many of these farmers have been liquidated and there are still significant amounts of outstanding debt at yearend owed by these farmers to SNH Ltd. During the current financial year, the accounting function has been converted from a manual system to a fully computerised system. There has however not yet been sufficient time for adequate training of the employees on how to use the new system. The financial director, Mr Ben la Grange, prepared the consolidated annual financial statements, including the financial statement consolidation worksheet. Based on this worksheet, he processed multiple complex consolidation journals. Ben is the only person who processes and authorises consolidation journal entries. The company decided to retrench its internal auditors at the end of April 2021 in a cost cutting exercise. An extract from the last report completed by the internal audit function was obtained and revealed the following: Inventory: During attendance of the inventory count, some inventory items were noted on the inventory count sheets, but could not be found in the storeroom. Sales: Due to the automation of the accounting function, there was an error in the closing date of sales captured and included in the accounting records. The system recognised 30 August as the last day for sales to occur since it was incorrectly set up as if August was a 30-day month. Property, plant and equipment: It has come to our attention that obtaining spares for some of the equipment that the company owns is extremely difficult. This has resulted in a number of machines that could not be used.

REQUIRED TO;

Based on the information provided, discuss the risks of material misstatement OF Simon Nick HoldingLltd at Financial Statement level .

Answer rating: 100% (QA)

1 the fabric misstatement that may be probably present in Simon Nick Holding Ltds financial statements are Fraud risk mismatch of inventory may end in ... View the full answer