Question 1 a) StrongGym (Strong) is a new audit client of June & Associates, a local audit firm. Strong is a fitness club that offers 24 hours access to their members. Its financial statements are prepared by an unqualified accounts officer. Strong recently updated its gym equipment and purchased new ones. However, it does not have a good control over the recording of their gym equipment, including the newly purchased ones. Strong receive monthly cash membership fees from its members which is paid to a cashier. It also receives membership fees from companies which signs up membership for their employees. They are allowed credit terms of 30 days to settle their fees but the accounts officer has highlighted that some of them have not paid for 60 days. paid for en dag Recently, one of the gym managers found out that one of the cashiers took the cash paid by the members as the receipts issued were not sequentially numbered. Required: (i) Describe FOUR audit risks that could arise for June & Associates when it audits the financial statements of Strong Co. (8 marks) (ii) Describe TWO internal control recommendations to Strong Co to overcome their poor controls over cash received (2 marks) Question 2 Please answer the following MCQs: 2 marks each (10m) You are auditing BagsForSale, a company selling custom-made handbags for their customers. The company will collect a deposit of 40% before designing and customising the handbags to the requirements of each customer. The balance of 60% will be paid upon collection of the hand bags. Customers are given 30 days to collect and make payments. 1) Which assertions are most at risk? A. Rights and obligations of inventory B. Cut of revenue C. Occurrence of revenue D. Valuation of inventory 11) Which of the following audit procedures would be most appropriate regarding the recording of the deposit of 40%? A. Inspect the deposit documentation received from customers and agree to revenue B. Inspect the deposit documentation and recalculate the amounts C. Inspect the deposit documentation and agree to deferred income D. Inspect the deposit documentation and agree to prepayments If the customers fail to collect the custom-made handbags and the balance 60% is not paid, what assertion are most at risk? A. Valuation of receivables B. Rights to collect the balance of 60% C. Existence of customers D. Accuracy of the receivables You are auditing Jamie Co, a listed entity manufacturing machinery for the paper production companies. Each machinery assembled by Jamie Co comes with a warranty provision. The company has also recently bought a patent to have exclusive rights to manufacture another type of machinery. iv) In relation to the warranty provision, which assertion is at risk? A. Completeness of the provision B. Existence of the provision C. Obligation and valuation of the provision D. Rights of the provision v) With regards to the patent, which of the following audit procedure would be relevant to obtain sufficient appropriate evidence about valuation of the patent? A. Inspect legal documentation relating to the patent to ensure the company has rights to use it B. Inspect the cash book and bank statement and agree cost paid for the patent C. Discuss with management about the use of the patent D. Physical inspection of the patent to confirm it exists Question 3 Describe TWO examples of audit procedure for test of controls (TOC) and TWO examples of audit procedure for substantive procedures (SP). (5 marks) Note: Marks will be given for explanation of TOC and SP