You are the auditor of Herbal Ltd for the year ended on 30 June 2021 responsible for
Question:
You are the auditor of Herbal Ltd for the year ended on 30 June 2021 responsible for the audit of revenue. The list of activities/events happened during the audit (with no chronological order):
1. The total sales revenue compared to selling expenses varied from 10-50%
2. The market has shown a decrease of interest of the products and services provided by Herbal.
3. The competitors are shown a great demand for their more sophisticated services and better quality of the products.
4. Herbal’s management seems to be settled in the idea that they have the best products of the market.
5. You accessed the average wage of Herbal’s management is above the industry.
6. Herbal’s employees were at a sit-down strike for 2 months last year.
7. Observing the sales department, you discovered that you have two staff responsible to receive payments who are the same authorising payments.
8. In a random visit, you found a third staff authorising the sales.
9. The total sales revenue compared to cost of sales varied from 30-60%
10. You checked the list of invoices issued and found gaps in the sequential number. You made some inquiries which were not enough to support your expectations.
11. You received confirmation letters from clients of Herbal indicating that twelve invoices were incorrect recorded in the books.
12. The revenue of the sector increased 5%, while Herbal increased 15%.
13. A sample of recorded sale revenue transactions found 3 errors below the tolerable misstatement.
14. You investigated extra sales transactions to make a conclusion that more than 30% of the investigated invoices were incomplete.
15. You found another five errors from a stratified sample (by clients) of the sales transactions.
16. You found five clients have many invoices with prices different from the approved price list.
17. There are ten invoices which were dispatched, at least, one month after to the dates confirmed by the Herbal’s clients.
18. In average, the goods arrive in the Herbal’s clients within 7-day period for local clients and within 21-day period for overseas clients.
19. You are convinced that the culture of Herbal is not supporting health competition.
20. One of the major executives was allegedly accused of misconduct practice by a former auditor.
21. There are five services of delivering recorded months later after the products arrived in the client.
Required:
1. Provide your opinion in relation to the audit risk using the activities/events to support your opinion.
2. Explain your approach regarding the errors found during the audit of revenue of Herbal Ltd.
Expert Answer:
1 Audit risk refers to risk to the risk that auditor expresses inappropriate audit opinion when financial statements are materially misstated it consists of risk of material misstatement and detection ... View the full answer
