You are working as an internal auditor with Newteck Sdn Bhd, a company that resells a...

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You are working as an internal auditor with Newteck Sdn Bhd, a company that resells a variety of mobile phones through the internet. The company imports mobile phones from suppliers in China and Europe where payments are made in US Dollars. Currently, the company has more than fifty models of phones available for sale. Each model is identified by a unique product code number. Customers place their orders directly via the internet and payment is made by credit card only. The company uses sales system software which automatically verifies order, customers' details and credit card information prior to the orders being approved and goods being dispatched. The company has existed for more than five (5) years and profits have been very good. Recently the company is under increasing pressure from suppliers in China. Most of these suppliers have informed that there will be a 100 percent increase on the cost of mobile phones supplied by them. The new price is to take effect immediately. There is also pressure from the government for rising import duties for telecommunication products. As such, the directors of Newteck Sdn Bhd are considering whether to move into new market areas. All directors and key management team of Newteck Sdn Bhd are remunerated based on monthly profit generated by the business. You have just started planning the audit of the sales system of the company. You have decided to use test data to check the input details into the sales system. You are also considering using audit software as part of your substantive testing of the sales system of the company. Required: a) Explain the concept risk-based auditing. Discuss why auditors adopt risk-based auditing in performing an audit engagement. (4 marks) b) Based on the information above, perform a preliminary risk assessment on Newteck Sdn Bhd (i.e. Identify and explain all matters that must be considered in the risk assessment of the company). c) Explain FOUR (4) ways Newteck Sdn Bhd could respond to the risks identified in (b) above. (12 marks) (4 mark- You are working as an internal auditor with Newteck Sdn Bhd, a company that resells a variety of mobile phones through the internet. The company imports mobile phones from suppliers in China and Europe where payments are made in US Dollars. Currently, the company has more than fifty models of phones available for sale. Each model is identified by a unique product code number. Customers place their orders directly via the internet and payment is made by credit card only. The company uses sales system software which automatically verifies order, customers' details and credit card information prior to the orders being approved and goods being dispatched. The company has existed for more than five (5) years and profits have been very good. Recently the company is under increasing pressure from suppliers in China. Most of these suppliers have informed that there will be a 100 percent increase on the cost of mobile phones supplied by them. The new price is to take effect immediately. There is also pressure from the government for rising import duties for telecommunication products. As such, the directors of Newteck Sdn Bhd are considering whether to move into new market areas. All directors and key management team of Newteck Sdn Bhd are remunerated based on monthly profit generated by the business. You have just started planning the audit of the sales system of the company. You have decided to use test data to check the input details into the sales system. You are also considering using audit software as part of your substantive testing of the sales system of the company. Required: a) Explain the concept risk-based auditing. Discuss why auditors adopt risk-based auditing in performing an audit engagement. (4 marks) b) Based on the information above, perform a preliminary risk assessment on Newteck Sdn Bhd (i.e. Identify and explain all matters that must be considered in the risk assessment of the company). c) Explain FOUR (4) ways Newteck Sdn Bhd could respond to the risks identified in (b) above. (12 marks) (4 mark-

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A Risk based auditing i Riskbased auditing ensures that the internal audit activity is focusing its efforts on providing assurance and advisory servic... View the full answer