Your client, Sweet Sounds Ltd (SS), manufactures mini hi-fi systems. The company has a year-end of 30
Question:
Your client, Sweet Sounds Ltd (SS), manufactures mini hi-fi systems. The company has a year-end of 30 June 2015. In December 2014, SS changed its manufacturing process to make its product more reliable. Because of this increased reliability, the company decided to increase the warranty on its products from 3 years to 5 years in relation to all sales made from 1 January 2015. From management's review of warranty claims relating to the new products, it was noted that claims were down by about 20% compared with the old product. Management made an estimate of the provision for warranty of \($4,000,000\) for 30 June 2015, up from \($3,500,000\) for the previous year.
Required
a. What are the main audit assertions you should consider for this part of the audit for SS?
Describe the types of substantive procedures you would perform to cover these assertions.
b. Discuss any special risks in auditing provisions for warranty (and in auditing SS's provision for warranty in particular).
Step by Step Answer:
Modern Auditing And Assurance Services
ISBN: 9781118615249
6th Edition
Authors: Philomena Leung, Paul Coram, Barry J. Cooper, Peter Richardson