Lumpul duit, or forensic audit). , UpClonal 122 Objectives 1-3, 1-4,1-5) As a manager responsible for the expected new audit clients. you visited Al Abor Company which is a limited liability company that manufactures the supplies of many specialized materials in the construction industry. Mr. Mounir, the execu tive manager and the holder of the majority stocks, asked your office to audit the company and provide the company with financial consultancy. During your first meeting you real ized that: The sales figure increased from US$4 million to US$7 million in the last two years and the company was profitable. In addition there is expected growth as Mr. Mounir has the following plans: 1. Increase the company's customers through making certain materials available for the public through the trade of the construction materials. 2. Expand the products base through building a factory overseas to manufacture the components of Carbonates Silicon. Mr. Mounir directly negotiated the prices with each of the suppliers and customers. An accounting office was assigned in the beginning of this year to help to monitor the credit and to state more formal accounting systems and procedures, and that the computer will provide the essential information about sales, customers, inventory, and salaries. Mr. Mounir's stepbrother wrote the computer program to satisfy the company's requirements. Some purchases require the conversion of foreign currency and this has to be recorded manually. At the end of each month there are small differences but the accounts to monitor the customers and suppliers are not adjusted. The annual budget estimates the actual revenues and the actual expenses less than nec. essary, because the increasing growth is more than expected, and the management's accounts are prepared infrequently on an irregular basis. . For the managerial accounting purposes the sales cost is calculated as a percentage of the sales value of the products' different categories. Historically this method proved that it is reasonably reliable when compared with the year-end evaluation of the annual inventory's physical examination. . The production lines profit margin became increasingly variable at the current time, also Al Abor Company faces a high level of spoiled products, and these materials are returned to the warehouses as they cannot be sold for cash with a discount. Mr. Mounir is negotiating a bank loan to fund the costs of planned new buildings, and the contracts with the contractors and the work has started. The bank waits for the profits forecasts before the final approval on a loan amounting to US$6 million. Al Abor Company tends increasingly to skip the facilitation of the agreed upon bank's overdraft. Mr. Mounir said that large receivables from one of the customers are expected at the end of this month which will be used to pay the tax liability and pay an amount of US$90,000 in the loan's account. . Recently Mr. Mounir was married and he bought an expensive apartment and a new car. He is satisfied with the accounting organization that currently audit the annual /THE AUDITING PROFESSION Required financial statements, and he said that the failure of adjusting the general ledgers is due to that, also he claimed that the organization was incapable of suggesting how to increase his rewards against his personal needs. a. Identify and describe the major activity risks associated with Al Abor Company. b. Identify and comment on the factors that should affect the auditor's decisions if the audit office should present a proposal to audit this company, c. Justify the appropriate audit strategy of the first audit of Al Abor Company, d. Suggest two types of procedures that Al Abor Company should directly implement to improve its accounting procedures and financial monitoring. MYLAB ACTIVITY Visit My AccountingLab and complete the following activity: Internet Problem 1-1: Sarbanes-Oxley Act Internal Control Reporting! Requirements. Lumpul duit, or forensic audit). , UpClonal 122 Objectives 1-3, 1-4,1-5) As a manager responsible for the expected new audit clients. you visited Al Abor Company which is a limited liability company that manufactures the supplies of many specialized materials in the construction industry. Mr. Mounir, the execu tive manager and the holder of the majority stocks, asked your office to audit the company and provide the company with financial consultancy. During your first meeting you real ized that: The sales figure increased from US$4 million to US$7 million in the last two years and the company was profitable. In addition there is expected growth as Mr. Mounir has the following plans: 1. Increase the company's customers through making certain materials available for the public through the trade of the construction materials. 2. Expand the products base through building a factory overseas to manufacture the components of Carbonates Silicon. Mr. Mounir directly negotiated the prices with each of the suppliers and customers. An accounting office was assigned in the beginning of this year to help to monitor the credit and to state more formal accounting systems and procedures, and that the computer will provide the essential information about sales, customers, inventory, and salaries. Mr. Mounir's stepbrother wrote the computer program to satisfy the company's requirements. Some purchases require the conversion of foreign currency and this has to be recorded manually. At the end of each month there are small differences but the accounts to monitor the customers and suppliers are not adjusted. The annual budget estimates the actual revenues and the actual expenses less than nec. essary, because the increasing growth is more than expected, and the management's accounts are prepared infrequently on an irregular basis. . For the managerial accounting purposes the sales cost is calculated as a percentage of the sales value of the products' different categories. Historically this method proved that it is reasonably reliable when compared with the year-end evaluation of the annual inventory's physical examination. . The production lines profit margin became increasingly variable at the current time, also Al Abor Company faces a high level of spoiled products, and these materials are returned to the warehouses as they cannot be sold for cash with a discount. Mr. Mounir is negotiating a bank loan to fund the costs of planned new buildings, and the contracts with the contractors and the work has started. The bank waits for the profits forecasts before the final approval on a loan amounting to US$6 million. Al Abor Company tends increasingly to skip the facilitation of the agreed upon bank's overdraft. Mr. Mounir said that large receivables from one of the customers are expected at the end of this month which will be used to pay the tax liability and pay an amount of US$90,000 in the loan's account. . Recently Mr. Mounir was married and he bought an expensive apartment and a new car. He is satisfied with the accounting organization that currently audit the annual /THE AUDITING PROFESSION Required financial statements, and he said that the failure of adjusting the general ledgers is due to that, also he claimed that the organization was incapable of suggesting how to increase his rewards against his personal needs. a. Identify and describe the major activity risks associated with Al Abor Company. b. Identify and comment on the factors that should affect the auditor's decisions if the audit office should present a proposal to audit this company, c. Justify the appropriate audit strategy of the first audit of Al Abor Company, d. Suggest two types of procedures that Al Abor Company should directly implement to improve its accounting procedures and financial monitoring. MYLAB ACTIVITY Visit My AccountingLab and complete the following activity: Internet Problem 1-1: Sarbanes-Oxley Act Internal Control Reporting! Requirements