Metalman Ltd is a scrap metal dealer situated in Gamashi. You have worked on the audit for the last three years and have been placed in charge of the audit for the current year 28 February 2019. Metalman Ltds shareholders have included a clause in the companys Memorandum of Incorporation which requires that the companys annual financial statements be externally

audited.Most of the companys inventory (scrap metal) is bought on credit from eleven mines and four car manufacturers in Gomorrah, although it does purchase for cash, a certain amount from other lesser sources. When scrap is delivered to Metalman Ltds premises, it is sorted by type, weighed, and then dumped on the existing stockpiles using front-end loaders. The weights are recorded on the perpetual inventory records, and the documentation is then passed through to the accounting department for processing. Roughly seventy percent of the companys scrap is sold to ten to fifteen Chinese industrialists who purchase the scrap for recycling. The scrap is loaded into containers, transported to Durban and shipped to China. Sales to local foundries make up the balance of the companys turnover and are mainly made for cash. As with purchases, sales are made on the basis of weight and the type of metal sold. Early in January you received a call from Ben Burga the companys major shareholder and managing director. He informed you that the companys bank was concerned about the increase in the overdraft and would require the year end audited financial statements by no later than 21March 2019. On this date, a meeting is to be held with Ben Burga to consider the state of the company and the banks continued support. You had scheduled an interim audit at Metalman Ltd for the middle of January but in view of this development, you decided to get started a few days after the phone call. After sorting out some administration matters, you commenced your risk assessment procedures and ascertained inter alia, the following:

1. Metalman Ltd has been experiencing cash flow problems for some months and the overdraft has increased alarmingly

2. This has been due mainly to falling prices on the world markets, an unstable localmarket which is in decline and slow payment from overseas debtors.

3. Because of the difficult trading conditions, the financial director left the company to take up a position at another company, leaving Ben Burga and Louis Green (operations director) as the only two directors of the company. Louis Green is also a shareholder.

4. A number of other administrative staff mainly in the accounting section, have also left or been retrenched leaving Miles Jul the financial accountant, as the most senior accounting employee. Whilst he is commpetent, his role in the company has been to run the computerized accounting system. The financial director had prior years, made all major financial decisions and overseen the preparation of the annual financial statements. Financial decisions are currently being made by Ben Burga. Miles Jul will prepare the annual financial statements with Ben Burga who has some accounting knowledge from his years in business. In his normally aggressive manner, Ben Burga has indicated that the financial statements will show the bank what they need to see.

5. Metalman Ltd has continued to purchase scrap from the mines (the company is contracted to do so) which has resulted in a material increase in the stock pile of scrap metal.

YOU ARE REQUIRED TO:

a) Assess the risk of material misstatement at the financial statement level for the financial statements of Metalman Ltd at 28 February 2019.

b) Discuss briefly your firms overall response to the risk of misstatement at the financial statement level.

c) Assess the risk of material misstatement at the account balance class of transaction level for the financial statements at 28 February 2019.

d) Discuss the nature, timing and extent of three further audit procedures at the assertion level and other planned procedures which the audit tteam will conduct.