Question 6 You are an audit supervisor of Shane & Partner and are planning the audit of your client, Winter Sparkle Sdn. Bhd. (Winter) which manufactures kitchen utensil. Its year end was 31 March 2022 and the draft profit before tax is RM16.8 million. You are supervising a audit team for the first time and will have specific responsibility for supervising and reviewing the work of the audit assistants in your team. Winter purchases....most of its raw materials from suppliers in South American and these goods are shipped directly to the company's warehouse and the goods are usually in transit for up to three weeks. The company has incurred RM650,000 of expenditure on developing a new range of kitchen utensil which are due to be launched into the market place in June 2022. In September 2021, Winter also invested RM450.000 in a complex piece of plant and machinery as part of the development process. The full amount has been capitalised and this cost includes the purchase price, installation costs and training costs. This year, the bonus scheme for senior management and directors has been changed so that rather than focusing on profits, it is instead based on the value of year-end total assets. In previous years an allowance for receivables, made up of specific balances...which equalled almost 1% of trade receivables was maintained. However, the finance director feels that this is excessive and unnecessary and has therefore not included it for this financial year 2022 and has credited the opening balance to the profit or loss account. A new general ledger system was introduced in January 2022; the finance director has stated that the data was transferred and the old and new systems were run in parallel until the end of December 2021. As a result of the additional workload on the finance team, a number of control account reconciliations were not completed as at 31. March 2022, including the bank reconciliation. The finance director is comfortable with this as these reconciliations were completed successfully for both April and May 2022. In addition, the year-end close down of the purchase ledger was undertaken on 4 April 2022. Required: Describe FIVE (5) audit risks, and explain the auditor's response to each risk, in planning the audit of Winter Sparkle Sdn. Bhd. Note: Prepare your answer using two columns headed Audit risk and Auditor's response respectively. (20 marks)
