Q5: You are auditing a manufacturing company Quqa Co. with a profit before tax $2800,000and the following information comes to light about your client:

1- Quqa Co has significant plant and machinery which it uses to make its products. During the year the efficiency of the companys machinery was improved significantly. This was because a comprehensive review of each piece of machinery was undertaken and an assessment was made as to whether a minor repair, extensive refurbishment or a complete replacement was needed. ABC then took the appropriate action in each case and spent a total of $700,000 in doing so.

2- Following some ratios that obtained from the client, compared with the industry ratios:-

Gross profit[% of total sales]

2018: 52%

2019: 75%

Industry average: 50%

Credit Sales[% of total sales]

2018: 60%

2019: 95%

Industry average : 55%

Receivables Turn over

2018: 4.56%

2019: 2.41%

Industry average : 5.1%

Inventory % of Total assets

2018: 24.7%

2019: 28.2%

Industry average : 23.4%

Inventory Turn over

2018: 2.15%

2019 : 1.75%

Industry average : 2.21%

Current Ratio

2018: 2.31%

2019: 1.15%

Industry average: 2.35%

Requirement:

1- Considering the audit risk in planning the audit procedures and explain the main issue/s that should be focused on. what are the main material misstatements risks that you should be prepared for when planning the audit??

2- For each issue that you identify above, explain evidence that should be obtained.

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((please you can solve it step by step ) and within logical and short answer ) thank you