1 6. It is 1 Jul 2021. You are an audit supervisor with Wong & Co and you are in the process of planning the audit of Canq Sdn Bhd, a company which sells domestic electrical appliances such as fridge freezers, TVs and washing machines. The company's year-end is 31 August 2021 and forecast revenue for the year is RM12.2m, total assets are RM6.8m and profit before tax is RM2.8m. The audit manager held a meeting with the finance director and the notes from that meeting are provided below. The company operates nationwide with 20 branches located across the country and sells goods members of the public and to retailers. The company has a returns policy which allows a customer to return goods within 28 days of purchase if they are not satisfied with the product. Historically, 5% of customers return goods within the return period. The company also provides a six-month warranty on its products which requires Canq Sdn Bhd to repair any defects, at its own cost, which arise within the warranty period. It is anticipated that the warranty provision in the draft financial statements will be lower than the prior year as the directors are confident the products sold by the by company are built to a very high standard. The company is based in Europe and its main supplier of appliances is based in Asia. Goods are shipped to the company's central warehouse by sea and are usually in transit for up to one month. Canq Sdn Bhd has responsibility for goods in transit from the point of dispatch by the supplier. The central warehouse and all 20 branches will be carrying out a full year-end inventory count on 31 August 2021 and it is expected that the value of inventory in Canq Sdn Bhd's financial statements will be RM0.95m. Over the last six months, the finance director has noticed that the company's receivables collection period is now average of 55 days, whereas the company's target is 42 days. The credit controller has informed the finance director that she is confident that all receivables will eventually pay as increases in receivables collection periods are starting to become common in the industry. The finance director believes it is unlikely that any increase in the allowance for receivables will be necessary at the year-end as compared to the prior year. In June 2021, a fraud was uncovered in the finance department. A payables leger supervisor had diverted funds from the company's bank account using a fictitious supplier on the payables ledger. The employee was immediately dismissed, and the value of the fraud will be recognised as an expense in the statement of profit or loss. Since the dismissal of the supervisor, purchase invoices have not been recorded in the payables ledger and it is unlikely that this backlog of invoices will be cleared by the year end. During the year, the company purchased and installed a new automated dispatch system for its central warehouse. The cost of the dispatch system was RM0.9m and has been recognised as an addition to property, plant and equipment. These capitalised costs include the purchase price of RM0.6m, installation costs of RM0.2m and staff training costs of RM0.1m. Due the costs incurred in purchasing the new dispatch system and the increase in the receivables collection period, the company's overdraft facility has increased significantly and at one point went over the agreed limit of RM0.7m in early June 2021. The bank has expressed concern about the way that the company is operating its bank overdraft and a decision will be made in November 2021 as to whether the bank will continue to provide this overdraft facility, which the company is dependent on. The auditor's report is due to be signed in October 2021. Required (a) Describe SEVEN (7) audit risks and explain the auditor's response to each risk in planning the audit of Canq Sdn Bhd. [42 marks]