Question
Hong Kong Electronics Company Limited (HKE) is listed on the Hong Kong Stock Exchange since 2003. HKE is principally engaged in developing and manufacturing electronic
Hong Kong Electronics Company Limited ("HKE") is listed on the Hong Kong Stock Exchange since 2003. HKE is principally engaged in developing and manufacturing electronic products including microcomputers for business and home use and DVD/MP3 players. HKE has four manufacturing plants situated in four different provinces of Mainland China. Competition is intense in this industry.
HKE sells its products to retail establishments across different districts in Hong Kong. Its customers include large chain stores and small retailers such as the computer stores that have become more widespread in the past several years. HKE also has its own sales team to promote the company's business products directly to companies. To assist the computer stores become established, HKE allows them a credit period of 90 days.
A trade magazine has recently reported that computer stores in the retail business has a high failure rate and stated that the survival of many of these stores would depend on a high level of sales in December. All products are covered by a one-year warranty. HKE personnel perform all warranty work.
Required:
You are an audit manager at Lau & Co and the in-charge auditor of HKE's 2019 audit. Identify and explain the factors that you would consider when you assess the risk of material misstatement at the financial statement level and at assertion level.
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