You are the partner in charge of the audit of Summit Limited (Summit), a Hong Kong...

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You are the partner in charge of the audit of Summit Limited (“Summit”), a Hong Kong incorporated limited company engaged in the manufacture of high value jewellery on a B2B web system (Business to Business sales in bulk). The production is based in the Mainland China and they have three main UK customers who have been with the company since its incorporation. The company also supplies exclusive shopping chain stores overseas. The Managing Director of Smart, Mr. Wong, used to be the production manager of one of the main client companies. The company has a small head office staff of 12 people including a Finance Director and Sales Director. Each staff is responsible for multiple roles. So it receives weekly sales & production reports from its subsidiaries in Shenzhen and Macau and keeps daily reports from its HK operations. The overseas reports are all via email. Stocks on hand are made for customer orders and kept mainly in HK warehouse. The company has a green approach to trading and on principle does not print out the reports. The electronic copies are stored on Mr Wong's personal USB memory stick and the reported figures are transferred by him onto the main reporting software for use by the accounting team in their reports. All sales packaging is recyclable. Each subsidiary has on average four administrative staff and as many production workers as are required. Each production worker has his / her own equipment and invoices the company on a weekly basis. These invoices are paid every Thursdays of the following week no matter they have or have not received payments from customers. Each production worker is responsible for the maintenance of their own equipment and any incidental expenses. The company policy is to supply jewellery on a custom-design and build basis. However in recent months demand has diminished due to the worldwide economic downturn and Mr. Wong has announced that he is to introduce tighter budgetary controls on manufacture and cut central overheads. He has also started selling directly to the public by stock up some models in jewellery they used to produce. Required: (a) Identify and explain the principal audit risks which must be considered when planning the audit of Smart for the year ended 31st December 2021. [10 marks] (b) Describe the audit assertion(s) you concerned most and the audit procedures to be performed in respect of the following items on the Balance Sheet of Smart: (i) Jewellery in stock; (ii) Accounts receivable; (iii) Manufacturing Machinery and Equipment. [8 marks] [8 marks] [4 marks] You are the partner in charge of the audit of Summit Limited (“Summit”), a Hong Kong incorporated limited company engaged in the manufacture of high value jewellery on a B2B web system (Business to Business sales in bulk). The production is based in the Mainland China and they have three main UK customers who have been with the company since its incorporation. The company also supplies exclusive shopping chain stores overseas. The Managing Director of Smart, Mr. Wong, used to be the production manager of one of the main client companies. The company has a small head office staff of 12 people including a Finance Director and Sales Director. Each staff is responsible for multiple roles. So it receives weekly sales & production reports from its subsidiaries in Shenzhen and Macau and keeps daily reports from its HK operations. The overseas reports are all via email. Stocks on hand are made for customer orders and kept mainly in HK warehouse. The company has a green approach to trading and on principle does not print out the reports. The electronic copies are stored on Mr Wong's personal USB memory stick and the reported figures are transferred by him onto the main reporting software for use by the accounting team in their reports. All sales packaging is recyclable. Each subsidiary has on average four administrative staff and as many production workers as are required. Each production worker has his / her own equipment and invoices the company on a weekly basis. These invoices are paid every Thursdays of the following week no matter they have or have not received payments from customers. Each production worker is responsible for the maintenance of their own equipment and any incidental expenses. The company policy is to supply jewellery on a custom-design and build basis. However in recent months demand has diminished due to the worldwide economic downturn and Mr. Wong has announced that he is to introduce tighter budgetary controls on manufacture and cut central overheads. He has also started selling directly to the public by stock up some models in jewellery they used to produce. Required: (a) Identify and explain the principal audit risks which must be considered when planning the audit of Smart for the year ended 31st December 2021. [10 marks] (b) Describe the audit assertion(s) you concerned most and the audit procedures to be performed in respect of the following items on the Balance Sheet of Smart: (i) Jewellery in stock; (ii) Accounts receivable; (iii) Manufacturing Machinery and Equipment. [8 marks] [8 marks] [4 marks]

Answer rating: 100% (QA)

a Principal Audit Risks 1 Going Concern Risk The sudden negative change in the demand due to the worldwide economic downturn could lead to the possibi... View the full answer