• Tech Ltd (Tech) runs a chain of superstores in Australia. Tech highly depends on the electronic data interchange system to manage their transaction processes with the suppliers. Each individual store can raise their own inventory requisition without authorization from the central purchase department and as a result saves them a lot of time. Mr. Abbot is the new CEO, who joined Tech three months ago. He used to work in the fashion industry and hence he is quite confident that Techs superstores sales can be increased by introducing clothing labels in the stores.

• Pluto Ltd (Pluto) manufactures generators for domestic users. Seven years ago Pluto manufactured a generator far superior to any of its competitors at half the price. It has therefore dominated the market over the past few years. However, recently one of Plutos main competitors introduced a new generator to the market. Based on the new competitors latest advertisements, you are aware that the competitors generator can produce electricity at twice the amount of Plutos generator by spending same amount of fuel and hence is superior to Plutos generator. However, Plutos CEO is quite optimistic about the whole situation. He told you that a pricing strategy will soon be implemented to fend off the new competitor and make redundant some employees to remain competitive.

• Ateamofinternalauditorshasbeenhired10monthsagobySaturnLtd(Saturn)toimproveonitsexistinginternalcontrol,whichhasbeenreliedonforthepast10years.Basedonyourexperience,therevampingprocessshouldonlytakeabout8months.Itcametoyourattentionthatonlyashortwhileaftertheemploymentoftheinternalauditors,theCEOofSaturnexperiencedseverepersonalfinancialdifficulty.YoualsofindthattheprocessofrevampingtheinternalcontrolhasbeendraggingbecausetheCEOkeptondecliningtheinternalauditorssuggestionsforimprovement.TheaccountantofSaturnhasbeennotoriousforfindinggapsinthelegislationsinordertomakeitsclientsfinancialstatementslookpresentableasdesiredbytheclientsthemselves.Inthepastfewyears,SaturnhasalwaysbeenrequiredbytheAustralianTaxOfficetoprovideadditionalsupportinginformationafterthelodgementofitstaxreturns.

Required

For each of the above independent situations, answer the following:

• Identify and discuss why the above situation represents a risk.

• By applying auditing knowledge, identify the main account or group of accounts affected in the audit plan by the risks identified in (a).
• Identifyhowtheauditplanwillbeaffectedbytherisksandrecommendspecificauditprocedurestoaddresstheserisks.

For example, the criterion of Identification of Issues is similar to the requirement (a) of the assignment where you need to identify the risks. The criterion of Application of Discipline Knowledge is similar to requirement (b), where students are required to identify the main account/ group of accounts affected by the risks in the audit plan. And the criterion of

Conclusions/Recommendations is similar to requirement (c), where students need to identify how the audit plan will be affected by the risks and recommend specific audit procedures to address these risks.