Question 1 You are the audit senior on the Wendig Limited (Wendig) audit and have commenced planning for the 2017 audit. You have been able to obtain the following information concerning various segments of the business: A. Although fairly voluminous, purchase transactions at Wendig are not complex. Inventories are tightly controlled so that overstocking and obsolescence are normally not a problem. Inventory, although not as liquid as cash, is subject to theft. At Wendig, finished packaged products are shipped immediately to customers, although large quantities of purchased merchandise are maintained on hand. The personnel handling purchases and inventory transactions are, in general, competent. Access to the warehouse is unrestricted. B. The sales transactions are not particularly complex at Wendig. No major estimation is involved except for allowance for doubtful debts. The persons processing revenue and trade receivables transactions are thoroughly familiar with the procedures and are generally competent. Sales transaction processing does, however, entail the completion of many transactions. Competition from overseas is becoming an issue, and because of the poor general economic conditions, some customers have requested extensions of time to pay. C. There are generally few fixed asset transactions. The transactions are often not complex but an element of risk can be introduced when management has to make decisions concerning whether to capitalise or expense items. Property, plant and equipment (PPE), being less liquid than other assets, are generally not subject to theft. In recent years a number of PPE items have been manufactured in-house. You have noticed as a result of your analytical procedures, that repairs and maintenance expense has dropped considerably in the last two years. Asset registers are maintained, and staff are generally competent. D. Although not complex, the volume of trade payables transactions is quite high. There is a risk with trade payables balances that personnel may fail to record them in the books as the company has applied to the bank for an increase in its overdraft and wants to impress the bank with a strong current ratio. At Wendig a request form is first prepared for all items that are to be paid through the cash disbursements system. The previous trade payables clerk, who had been with the company for eight years, left in December 2016. A new clerk was hired bit s not yet thoroughly familiar with the procedures.

Required: For each of the above given situation:

1. Determine any factors leading to significant audit risks with reference to the relevant facts and provide justification.

2. Identify the key account balance, related assertion at risk with justification.