AUDIT

(b) Your firm has recently been appointed as external auditor to Nada Sdn Bhd. The firm is a privately held corporation that runs an online marketplace. You're preparing to conduct a financial statement audit. The business has been in operation for five years and is rapidly expanding. It was formed by three individuals: a certified accountant, an IT expert, and an entrepreneur. With 10,000 people, the corporation has various offices around Asia. The online marketplace is a very competitive environment. In Malaysia, Nada is the largest provider of the service. The board of directors has big ambitions, including an aggressive marketing campaigns, a takeover of target competitors, and more office space and people, all of which will cost a lot of money. Part of the company's funding comes from a private fund established by the three founders, and the rest comes from bank loans. The three founders were all directors, but the certified accountant quit five months ago and has filed a lawsuit against the firm for a large sum of money, alleging that the other two directors effectively excluded him from management. The balance sheets reveal net liabilities. Although preliminary figures show that the company has reached break-even point for the current year, the company has yet to make a profit. Your firm has discovered that the previous auditor was not re-appointed because they declined to offer an unmodified audit opinion on the previous year's financial accounts, instead referring to the company's going concern status in their audit report. Your firm has informed the directors that it is probable that the company's going concern status will need to be mentioned again in the current year, but they have stated that they would prefer an unmodified report if at all possible. You're also aware that financing facilities for this type of business are becoming rare as a result of the large number of businesses looking for funding. The accountant who resigned five months ago was in charge of the day-to-day accounting function as well as the financial and management accounts preparation. The company has been using a temporary accountant since it has been unable to find a permanent replacement. Your initial investigation revealed a number of weaknesses in the operation of the accounting and internal control systems. Required: Identify and explain FIVE (5) audit risk associated with the audit of Nada Sdn Bhd. (10 marks)