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Maple Leaf Holdings Limited (ML) is a company listed on Hong Kong Stock Exchange. Together with its subsidiaries, ML is engaged in the manufacturing and

Maple Leaf Holdings Limited (ML) is a company listed on Hong Kong Stock Exchange. Together with its subsidiaries, ML is engaged in the manufacturing and trading of various candies and chocolates in Hong Kong and the Mainland China. ML sells a wide range of products, from ordinary to high-end. Ordinary products targeting the mass consumer are sold to supermarkets and convenience stores. For high-end products, sales are made to luxury restaurants and hotels. ML also operates its own retail outlets.
In December 2018, ML appointed its first internal auditor, Ms. Cindy Yu, who reports directly to the accounting manager. Cindy is a newly qualified CPA. She joined ML as an accounting assistant in 2012, shortly after obtaining her first degree. In 2016, she was promoted as assistant accounting manager. She was transferred to her present role in December 2018.
Cindy has been focusing her work on the economy, efficiency and effectiveness of operations, mainly in respect of the non-financial controls of ML. She and her team have reviewed the ingredient ordering and warehousing processes in the past twelve months.
Cindy produced an internal audit report summarising her findings and recommendations on where processes could be improved. However, due to time, manpower and resources constraints, she did not maintain much record on her understanding of the ingredient ordering and warehousing processes and details of the work she performed (e.g. what samples were tested).
Some significant recommendations in the internal audit report were:
(1) more disaggregated information and analyses on sales should be generated, prepared and reviewed on a regular basis for better purchase decisions and formulation of effective sales strategies; and
(2) security in the warehouse should be improved including the installation of surveillance cameras inside the warehouse rather than just at the entrance, and having two guards instead of currently only one guard.
Required:
. (a) From the above information, evaluate the effectiveness of MLs internal audit function.
(10 marks)
. (b) Assume you are the external auditor of ML for the financial year ended 31 December 2019:
(i) Discuss the impact of the internal audit findings on your financial statement audit.
(2 marks)
(ii) Identify and explain any TWO financial statement assertions you will focus on in your audit.
(4 marks)

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