QUESTION 1 (35 MARKS) Metallic Stainless Steel Specialist (MSSS) is a manufacturer of hot water-based heating systems for homes and commercial businesses. The company has grown about 15% in each of the past five years. The company has not made any acquisitions Following are some statistics for the company: Overview of Operational Data Metallic Stainless Steel Specialist (MSSS) (Sales and Net Income Reported in RM millions) 2015 2016 2017 2018 2019 (unaudited) RM 800 RM 880 RM 950 RM 1,050 RM 1,300 RM28 RM 38 RM 42 RM 52 RM 68 RM17 RM 24 RM 28 RM 47 RM 19 1.00 1.04 1.09 1.13 1.14 Sales Net income Stock price Economic growth in area served (index with 1.00 for 20 x 1) Percent of heating market by MSSS Account receivable Percent of sales made in last quarter Gross margin (%) 8.9 9.4 9.6 10.8 14.0 RM 180 RM 170 RM 196 RM 210 RM 297 38 36 40 38 43 28.0 28.3 28.8 29.2 33.2 Additional information available to the auditor includes: The company has touted its new and improved technology for the increase both in sales and in gross margin The company claims to have decrease administrative expenses, thus increasing net profits. Additional information available to the auditor includes: . The company has touted its new and improved technology for the increase both in sales and in gross margin The company claims to have decrease administrative expenses, thus increasing net profits. The company has reorganized its sales process to a more centralized approach and has empowered individual sales managers to negotiate better prices to drive sales as long as the amounts are within corporate guidelines. The company has changed its salesperson compensation by increasing the commission on sales to new customers. Sales commissions are no longer affected by returned goods if the goods are returned more than 90 days after sale and/or by not collecting the receivables. MSSS has justified the changes in sales commissions on the following grounds: - The salesperson is not responsible for quality issues- the main reason that customers return products. - The salesperson is not responsible for approving credit; rather credit approval is under the direction of the global sales manager. Required: (a) Explain the importance of the information about salesperson compensation to the audit of receivables and revenue of Metallic Stainless Steel Specialities to the auditor. (4 marks) (CLO3:PLO6:C4) b) Describes how the auditor would use the information about the salesperson compensation of Metallic Stainless Steel Specialities in planning analytical procedures. (4 marks) (CLO3:PL06:C4) () Perform planning analytical procedures by using the data included in the table above and the information about the change in performance for Metallic Stainless Steel Specialities. (8 marks) (CLO3:PL06:06) (d) Based on the analytical procedures perform in requirement (C), discuss the important insights that auditor should gain from performing the procedures. (8 marks) (CLO3:PL06:C2) (e) Justify why the auditor should be interested in Metallic Stainless Steel Specialities's stock price when performing an audit, as stock price is dependent on at least company's audited financial statement. (3 marks) (CLO3:PL06:05) (f) As an auditor, evaluate either there are fraud risk factors in Metallic Stainless Steel Specialities. (4 marks) (CLO3:PLO6:05) (d) Based on the analytical procedures perform in requirement (c), discuss the important insights that auditor should gain from performing the procedures. (8 marks) (CLO3:PLO6:C2) (e) Justify why the auditor should be interested in Metallic Stainless Steel Specialities's stock price when performing an audit, as stock price is dependent on at least company's audited financial statement. (3 marks) (CLO3:PL06:05) (f) As an auditor, evaluate either there are fraud risk factors in Metallic Stainless Steel Specialities. (4 marks) (CLO3:PLO6:05) (9) Describes the specific substantive audit procedures that should be performed by auditor as a results of the planning analytical procedure in (b) of Metallic Stainless Steel Specialists
