A)Ron Smith became the new CEO of PEAK Ltd, until he died unexpectantly. After h

Question

A)Ron Smith became the new CEO of PEAK Ltd, until he died unexpectantly. After his death, his daughter Amy became the new CEO of PEAK Ltd and embarked on a cost cutting exercise, which included a reduction in key staff in the credit department. B)During the planning stage of the audit of PEAK Ltd, the audit senior assessed the sales control system to be effective. But when testing sales, the audit assistant traced 2 sales to supporting documentation (invoices) with dates for the prior financial year. For each of the two situations described above, please complete the following:- SITUATION A Outline briefly why the situation constitutes an audit risk. List and explain the component of the audit risk model affected. Indicate the key account balance(s) affected. Indicate the audit assertion(s) to be tested. SITUATION B Outline briefly why the situation constitutes an audit risk. List and explain the component of the audit risk model affected. Indicate the key account balance(s) affected. Indicate the audit assertion(s) to be tested.

Explanation / Answer

In answering part (a) it is expected that your report would include information about the nature of the client’s operations, industry data and results of planning analytical procedures (including simple comparisons and ratio analysis). A comparison of your new client to the industry information should also be included. In addition you should include any other information relating to the new client that you deem of interest/relevant to understanding the client’s business and assessing potential risks, This additional information could include but is not limited to the applicable the regulatory framework surrounding client, environmental issues, Corporate Governance issues relating to the client such as existence of an audit committee or interlocking directorships, or recent 'press' coverage about your client or the client’s industry. In answering part (b) it is expected that for each of the risks you identify you will include: an explanation as to why the situation constitutes an audit risk; identify the key account balance affected; identify the prime audit assertion to be tested; and describe in specific terms one substantive audit procedure you consider would best address the risk.

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