Can anyone please help me solve this question? As I am finding it really difficult to solve.I have attached an exemplar below the question.

You are the Audit Senior at NicewaterhouseCoopers (NwC) and have been assigned to the audit of Premium Wallets Limited (PML) for the year ending 30thJune 2020. PML manufactures and sells wallets for both men and women. PML manufactures all its products at its Malaga factory in Perth and sells via its retail outlet located in Osborne Park.45% of PML's sales are to contractors selling fashion accessoriesin three West Australian cities, namely, Kalgoorlie, Leinster and Margaret River. PML is listed on the Australian Securities Exchange and NwC has been its auditor for several years.

In recent years, PML has been finding it difficult to meet its projected profit forecasts due to increased competition from new local competitors, imported products and online shopping; the increasingly high Australian dollar; and the impact of the COVID-19 induced global economic crisis on consumer spending.

During the planning and risk assessment phase of the audit you become aware of the following matters relating to PML:

1. PML has significant loans from its bank. The bank has indicated that it is concerned about PML's ability to meet specific loan covenants, particularly thereturn on total assets (net profit/total assets).
2. Retail customers at Osborne Park pay for merchandise by cash or credit card at cash registers when merchandise is purchased. A contractor may purchase merchandise on account, if approved by the credit manager based only on themanager's familiarity with the contractor's reputation. After credit is approved,the sales associate files a prenumbered charge form with the accounts receivable supervisor to set up the receivable.
3. The aged trade accounts receivable listing indicates that the percentage of accounts receivable exceeding 90 days has jumped from 15 per cent to 42 per cent during the last 12 months. The credit manager has indicated that this is because some of PML's customers are currently experiencing financialdifficulty.
4. The accounts receivable supervisor independently verifies the pricing and other details on the charge form by reference to a management-authorised price list, corrects any errors, prepares the invoice, and supervises a part-time employee who mails the invoice to the contractor. The accounts receivable supervisor electronically posts the details of the invoice in the accounts receivable subsidiary ledger; simultaneously, the transaction's details are transmitted to thebookkeeper. The accounts receivable supervisor also prepares a monthly computer-generated accounts receivable subsidiary ledger without a reconciliation with the accounts receivable control account, and a monthly report of overdue accounts.

1. The bookkeeper receives the details of transactions from the accounts receivable supervisor and the cashier for journalising and positing to the general ledger. After recording the remittance advices received from the cashier, the bookkeeper electronically transmits the remittance information to the accounts receivable supervisor for subsidiary ledger updating. The bookkeeper sends monthly statements to contractors with unpaid balances upon receipt of the monthly report of overdue balances from the accounts receivable supervisor. The bookkeeper authorises the accounts receivable supervisor to write off accounts as uncollectible when six months have passed since the initial overdue notice was sent. At this time, the credit manager is notified by the bookkeeper not to grant additional credit to that contractor.
2. In order to reduce costs, PML changed one of its major suppliers of leather in February 2020 to a cheaper overseas supplier. However, the number of product returns has increased significantly since April 2020, and your discussions with management have indicated that the increased returns have involved customer complaints concerning the quality of the product.
3. Your review of PML'spayroll system has indicated that when an employee is hired or terminated, the payroll clerk immediately prepares the paperwork and enters the information into the master file of the payroll computer system.

Required:

Prepare a memorandum to the Audit Manager, outlining your risk assessment relating to PML. When making your risk assessment:

1. (a)Identify and describe the inherent risk, control risk and fraud risk factors affecting PML.
2. (b)Identify how the audit plan will be affected for sales/accounts receivables. Recommend specific audit procedures to address the risks identified in the sales/accounts receivables area.

EXEMPLAR

You are the Audit Senior on the audit of Bright Lights Limited, wholesalers of electrical equipment. You are currently reviewing the system of internal controls over cash collection at its Victorian branch. The head office of Bright Lights Limited has informed you that it suspects that possible irregularities are taking place in the Victorian branch. This branch is the largest single outlet of the company.

Your enquiries reveal the following procedures for collecting cash. (Cash refers to currency and cheques).

1. There are two invoice sets that are used for cash sales and credit sales respectively.
2. When payment for cash sales is received by the cashier, one copy of the invoice is stamped as paid and filed alphabetically, and the other is given to the customer.
3. Credit sales invoices are sent to the customers.
4. Mail is opened by the secretary, who passes any cheques to the credit controller
5. for his review, without recording the amounts received.
6. The credit controller gives the cheques to the cashier by depositing them in a tray
7. on the cashier's desk.
8. The cashier then makes a listing of the cheques, which is used by the credit
9. controller for posting to the accounts receivable ledger.
10. The cheques from credit customers and receipts from cash sales are banked daily
11. by the cashier, except for once a week when sufficient money is retained to reimburse petty cash.

Required:

Prepare a memorandum to the audit manager, outlining your risk assessment relating to Bright Lights Limited. When making your risk assessment:

(a) Identify describe control weaknesses in the accounting for cash receipts of Bright Lights Limited.

(b)Suggest improvements in internal controls to prevent irregularities in the collection of cash.

(c) Identify how the audit plan will be affected for cash receipts/cash balance. Recommend specific audit procedures to address the risks identified in the cash receipts/cash balance area.

MEMO

Ref:

To: Audit Manager

From: Audit Senior

Date: XXXXXXXX

Subject: Bright Lights Limited

Introduction and Scope:

I have just completed reviewing the internal controls of Bright Lights Limited. In this memo, I will be outlining thecontrol weaknesses I observed in the firm's accounting for cash receipts.Based on these control weaknesses, I will be suggesting improvements in internal controls to prevent irregularities in the collection of cash. Based on the criteria outlined in ASA 300'Planning an Audit of a Financial Report', I will also be recommending the preferred auditapproach to be adopted.

Control Weaknesses in the Accounting for Cash Receipts:

There is no control over receipts from cash sales. Money from cash sales could be misappropriated before being banked. There is a breakdown in segregation of duties of the credit controller in that the credit controller could misappropriate cash from customers and conceal the theft by writing off the account or adjusting the discounts allowed. Only one person opens the mail. That person could misappropriate cash. No record is made of cash at the point of opening the mail. Cash could subsequently be misappropriated, such as by the cashier, as there is no record of it having been received. Cash is not deposited intact daily. There is a possibility of error arising if cash receipts are used directly for petty cash. In particular, neither the cash receipt nor the petty cash expenditure may be recorded.

Suggested Improvements in Internal Controls to Prevent Irregularities:

Cash sales invoices should be checked for numerical continuity and totalled daily by a person with no access to cash. The amount should be recorded in the sales journal, included in the total credit to sales and debited to a cash sales account in the accounts receivable ledger. Mail should be opened by persons wholly unconnected with cash and accounts receivable. Two persons should be present at the mail opening requiring them to be in collusion if either is to misappropriate cash unobserved. All cash should be recorded by those opening the mail. This rough cashbook should be checked against cash banked by an independent person such as the credit controller. All cash should be deposited intact daily. A separate cheque should be written to reimburse petty cash supported by petty cash vouchers.

Audit Approach:

Control risk appears to be high since there appear to be control weaknesses in the area of cash receipts. Hence, detection risk needs to be lowered with extensive substantive testing. Tests of details of transactions and account balances need to primarily be applied to verify the cash account with limited reliance on tests of controls and analytical testing. Considering the risks surrounding Bright Lights Limited, I recommend the adoption of a pre-dominant substantive approach to verify the cash balances with most substantive procedures performed at or near the year-end.

Extensive audit procedures may need to be undertaken to investigate fraud (ASA 240). Since controls are weak around cash receipts, going concern issues (ASA 540) surrounding the firm need to be investigated. Supporting documents such as remittance advices may need to be inspected to verify cash receipts. Sequence checks may be undertaken of transaction details and remittance advices. Checks also need to be undertaken to ensure cash receipts are recorded correctly in accordance with charts of accounts, and are presented and approved in accordance with the applicable accounting framework. Cash balances must also be verified by requesting and examining bank confirmations and undertaking tests of bank reconciliations. Finally, a management representation letter must alsobe obtained documenting management's view onthefirm's internal controls and in particular controls over the accounting for cash receipts