Magnets Ltd is a wholly owned subsidiary of Industrial Glues Ltd, a successful listed company. Your firm has held the appointment of auditor of Magnets Ltd for some years, but you have not worked on the audit before. Despite this, you have been placed in charge of the current year's audit due to a re-organisation of your firm's audit teams. Magnets Ltd manufactures a range of fixing devises at its factories in two cities.

The company's accounting system is resident on a local area network using software which was developed by the group's internal IT section. The applications were developed in-house because of the unique features the company has in costing and selling its products.

The holding company's board of directors places a great deal of emphasis on operational efficiency and as a result there is a strong control culture in the group companies, including Magnets Ltd. All group companies are required to appoint audit committees, one member of which must be a non-executive director of Industrial Glues Ltd. There is a comprehensive monthly management reporting system in place. The group also has an internal audit division whose manager has former "Big Four" experience as an IT partner. Regular visits to subsidiary companies are scheduled and reports from internal audit are awaited by subsidiary company directors with some nervousness. However, senior personnel are well remunerated with generous bonuses paid for reaching financial targets and operational benchmarks.

In addition to the group internal auditors and computer division, subsidiary companies have access to the group's in-house legal council for advice on any legal matter which may concern directors or staff. The company's factory employees are members of the relevant unions and works closely with HR of Magnets Ltd to embrace fair labour practice.

Your audit firm has always had a co-operative working relationship with the directors of Magnets Ltd. Having gathered the above background information, you are about to commence procedures to assess the risk of material misstatement in the financial statements.

REQUIRED:

1.Describe the procedures you will conduct to assist you in your assessment. Give examples of

the information you would be seeking for each procedure.

2.Evaluate the risk of material misstatement at financial statement level.

3.Comment on your overall response to the risk of misstatement at the financial statement level.