Question
AB Co. Ltd imports, sells and services mobile telephones to retailers. You have been provided with the following information for the 30 June 2019 audit
AB Co. Ltd imports, sells and services mobile telephones to retailers. You have been provided with the following information for the 30 June 2019 audit of AB Co. Ltd AB Co. Ltd sells to retailers in both India and China Inventory is usually provided to retailers on a sale or return (consignment) basis AB Co. Ltd has an employee bonus scheme based on sales There has recently been a large increase in the number of faulty phones being returned by retailers. The reason for the fault has not yet been determined by AB Co. Ltd Perpetual inventory records are maintained for all inventory using a well-known computer inventory package Physical inventory is counted monthly, reconciled to the perpetual records and appropriate adjustments made The technology in the telephone industry changes very quickly and new models are released regularly The managing director plays golf with your brother-in-law The following information has been extracted from the financial records of AB Co. Ltd: 2019 2018 Unaudited Audited $000 $000 Sales revenue 16,500 15,600 Inventory 3,600 2,200 Accounts receivable 5,450 4,100 Required: a) You are planning the audit of AB Co. Ltd for the year ended 30 June 2019 and are concerned about the risks associated with accounts receivable and inventory. Identify three (3) factors for each of accounts receivable and inventory that increase audit risk. Discuss why these factors increase audit risk with reference to financial report assertions. b) You believe that computer assisted audit techniques may be able to assist you in the audit of AB Co. Ltd for the year ended 30 June 2019. For each of accounts receivable and inventory, specify four (4) ways in which audit software could be used to assist in the audit of the key assertion at risk as identified in Part A.
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