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will receive diferent case studies and different questions. You are the audit senior of an accounting firm and you are planning the audit of your client for the year ended 30 June 2020. Your audit manager has held a planning meeting with the client's finance director. Your audit manager has provided you with his notes of the meeting and financial statement extracts. You are required to: Calculate SIX (6) ratios, for BOTH years, which would assist the audit senior in planning the audit; (3 marks) Using the information provided and the ratios calculated, identify and describe SEVEN (7) audit risks and explain the auditor's response to each risk in planning the audit of your client. (7 marks) You are the audit senior of King Accountants and you are planning the audit of Simba Pty Ltd (Simba) for the year ended 30 June 2020. Simba specialises in building houses and provides a five-year building warranty to its customers. Your audit manager has held a planning meeting with the finance director. He has provided you with the following notes of his meeting and financial statement extracts: Client background and notes from planning meeting Simba has had a difficult year; house prices have fallen and, as a result, revenue has dropped. In order to address this, management has offered significantly extended credit terms to their customers. However, demand has fallen such that there are still some completed houses in inventory where the selling price may be below cost. During the year, whilst calculating depreciation, the directors extended the useful lives of plant and machinery from three years to five years. This reduced the annual depreciation charge. The directors need to meet a target profit before interest and taxation of $500,000 in order to be paid their annual bonus. In addition, to try and improve profits, Simba changed their main material supplier to a cheaper alternative. This has resulted in some customers claiming on their building warranties for extensive repairs. To help with operating cash flow, the directors borrowed $1 million from the bank during the year. This is due for repayment at the end of 2020. Financial statement extracts for year ended 30 June 2020 UNAUDITED AUDITED 2020 2019 $'000 $'000 Financial statement extracts for year ended 30 June 2020 UNAUDITED AUDITED 2020 2019 $'000 $'000 Revenue 12,500 15,000 Cost of sales (7,000) (8,000) Gross Profit 5,500 7,000 Operating expenses (5,000) (5,100) Profit before interest and taxation 500 1,900 Inventory 1,900 1,400 Receivables 3,100 2,000 Cash 800 1,900 Trade payables 1,600 1,200 Overdraft 1.000 1643 Cash 800 1,900 Trade payables 1,600 1,200 Overdraft 1,000 REQUIRED (a) Calculate SIX ratios, for BOTH years, which would assist you in planning the audit of Simba Pty Ltd. Prepare your answer using the following tabular format and show your formula and calculation. Note: prepare your answer using a tabular format with three columns headed (1) Ratio Name & Formula, (2) Year 2020, (3) Year 2019. (3 marks) (b) From a review of the above information and the ratios calculated, describe SEVEN audit risks and explain the auditor's response to each risk in planning the audit of Simba Pty Ltd. Prepare your answer using the following tabular format with columns headed Audit risk and Auditor's response respectively. Note: prepare your answer using a tabular format with two columns headed Audit Risk and Auditor's Response. (7 marks) HTML Editora Ix E53 X X E
