1.2. You are a member of the audt team currently engaged on the 31 March 2022 external audi of Style (Pty) Ltd, a large supplier of clothing to the retail trade. Fashion garments make up a significant portion of Style (Pty) Lid's sales. Style (Py) Ltd does not manufacture garments but acquires its inventory from local manulacturers. The company is financialy sound and the directors run the company in terms of strong ethical business principles. You have been assigned to the year-end audit of trade debtors and during late March, you attended a meeting at which the intemal audit manager and the financial controler of Style (Pty) Ltd, as well as your audt manager, were present. At the meeting the following information was fortheoming: a. It is anticipated that the bulance on the trade debtors account at year end will be about R7 milion, making up a very significant portion of current assets. b. The company has a wide range of debtors both in terms of rand value and in nature and size of customer. For example, the company suppies large retalers (e.g. Edgars) as well as medium to small clothing shops and fashion boutiques. c. From the 1st January 2022 , the company converted is computerised trade debtors and related acplications onto a new computer system. Good systems development controls were implemented belore installation and both 1 internal audit and your firmis computer audit division were involved in the project. Since the conversion, internal audit has continued to perform post implementation reviews on the system. d. As part of the post impiementation review, internal audit conducted positive deblors circularization at 31 Janusry and 28 February, In view of this. your audit manager as instucted you not to carry out a debtor's circularisation for purposes of this audit. Other members of your audit team have conducted tests of controls, as well as some roll forward tests, on the revenue and receipts cycle (and related applications) for January. February and March. These tests have proved successful. This section of the audit team will also perform sufficient "cut-off" tests on the relevant cycles at 31 March. e. The audit deadine is 31May2022 and is not considered to be particularly tght. t. The following fields are contained on the debtors masterfle: - account number - name - address - total amount owed - total amount aged: current, 30 days, 60 days, 90 days, 120 days and over. - credit limit - credit terms - status query code 1 r unresolved dispute with debtor - code 2 = internal letter of demand sent - code 3 = handed over to lawyers for collection YOU ARE REQUIRED TO: 1.2.1. Brielly comment on whether the risk of malerial misstatement relating to trade debtors at 31 March 2022 should be regarded as low, medium or high, based on the information in the case study above (6 marks) 1.2.2. Describe the substantive procedures you will conduct to verily that trade deblors are fairly presented at 31 March 2022 (9 marks)
