You are the auditor of Eagle Ltd, a retailer of office supplies with operations in all major
Question:
You are the auditor of Eagle Ltd, a retailer of office supplies with operations in all major Australian capital cities. Eagle sells a range of products including electronic equipment such as computers, printers, tablets and phones as well as stationary and office furniture.
You are in the process of assessing the risk of material misstatement at the financial report and assertion level as part of your audit planning for 2019-20. You have noted the following issues which may have an impact on your opinion on the risk of material misstatement.
Issue 1: In an effort to motivate managers of retail outlets, the board of Eagle approved the introduction of performance-based remuneration for store managers in August 2019. Under the scheme, each manager will get a bonus of $5,000 once a set sales target is achieved. A further bonus of 0.75% of profits will also be awarded if store profits exceed a predetermined target.
Issue 2: In February 2020, a decision was made by sales team of Eagle to heavily discount a range of office furniture. The decision was made in response to the increased competition in the discount office furniture market.
Issue 3: In March 2020 Eagle upgraded its inventory system. The company which developed and implemented the system has also provided training to staff to assist them in operating the new system.
Required
For each of the three (3) 'Issues' above: Identify whether the risk of material misstatement would increase, decrease or not change; identify what account area(s) would be affected; AND identify the assertion most directly affected.
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany