The overdraft has increased significantly over the year and the directors have informed you that the overdraft facility is due for renewal next month, and they are confident it will be renewed. The directors have decided that in order to conserve cash, no final dividend will be paid in 2015 . Required: (a) Describe procedures that the auditor should perform to resolve exceptions noted for each customer during the positive receivable circularisation for Kalahari. [9 marks] N.B. Present your answer as follows: (b) Describe substantive procedures auditor should perform to obtain sufficient and appropriate audit evidence in relation to allowance for receivables in the current year. [ 9 marks] (c) Identify and explain three potential indicators that Mega-Electro is not a going concern. [ 9 marks] (d) Describe audit procedures to perform to assess whether or not Mega-Electro is a going concern. [13 marks] You have recently been appointed as the partner for the 2011 financial year audit of NIWA (Pty) Ltd, a new client for your firm. NIWA's financial year end is 30 September. As a result of a difference in opinion, the previous auditors decided to resign as auditors. You obtained the following information from your recent planning meeting with the financial manager of the company: NIWA (Pty) Ltd is a manufacturer of a specific homeopathic eardrop that can only be sold to homeopaths. NIWA (Pty) Ltd has standing contracts with most of the registered homeopaths in South Africa. The homeopathic eardrops are manufactured with machines specifically designed for this purpose and can only be serviced by the technicians of the manufacturer in Hungary. These eardrops were patented in South Africa during 1995. NIWA (Pty) Ltd sells their homeopathic eardrops on normal credit terms to all registered homeopaths. The only exclusion is sales to the Health Forum that is supplied on a consignment basis. The management director of NIWA (Pty) Ltd, Mr Steph Kotze was appointed on1 January 2008 after the retirement of the previous management director. Steph worked as a purchase manager from 1995 to 2000 at a homeopathic company. From 2001 to 2007 he coached the Proteas, the South African Senior Cricket team. You received a copy of the monthly management accounts to date during the planning meeting. The audit senior has subsequently vouched the completeness, accuracy and reliability of the information in the management accounts and has come to the conclusion that you can rely on these accounts. agement accounts, the audit senior compiled the following analytics: You have performed preliminary tests of controls on the sales and receivables cycle and have come to the conclusion that you can rely on the internal controls. The client has informed you that the financial statements are required by 15 November 2011 as the company's borrowing facility is reviewed on an annual basis and that the bank requires the audited financial statements for this purpose. REQUIRED: Describe which matters you will consider in the development of your overall audit plan for the year ended 30 September 2011. Your answer should amongst others include audit risks affecting the audit as well as an evaluation of the planning materiality. (40) As Lily undertakes continuous production, there will continue to be movements of raw materials and finished goods in and out of the warehouse during the count. These will be kept to a minimum where possible. The level of work-in-progress in the manufacturing plant is to be assessed by the warehouse manager. It is likely that this will be an immaterial balance. In addition, the raw materials quantities are to be approximated by measuring the height and width of the raw material piles. In the past this task has been undertaken by a specialist; however, the warehouse manager feels confident that he can perform this task. Required For the audit of the inventory cycle and year-end inventory balance of Lily Window Glass Co: [20 marks] (i) Describe audit procedures that could be carried out using computer-assisted audit techniques (CAATS); [10 marks] (ii) Explain the potential advantages of using CAATs; and [5marks] (ii) Explain the potential disadvantages of using CAATs. [5 marks] Note limit your answers to the case study given. QUESTION 3 [20 MARKS] AUDITING IN A COMPUTERISED ENVIRONMENT [200 MARKS] Lily Window Glass Co (Lily) is a glass manufacturer, which operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are two warehouses, where the company's raw materials and finished goods are stored. Lily' s year end is 31 December. Lily is finalising the arrangements for the year-end inventory count, which is to be undertaken on 31 December 2012. The finished windows are stored within 20 aisles of the first warehouse. The second warehouse is for large piles of raw materials, such as sand, used in the manufacture of glass. The following arrangements have been made for the inventory count: The warehouse manager will supervise the count as he is most familiar with the inventory. There will be ten teams of counters and each team will contain two members of staff, one from the finance and one from the manufacturing department. None of the warehouse staff, other than the manager, will be involved in the count. Each team will count an aisle of finished goods by counting up and then down each aisle. As this process is systematic, it is not felt that the team will need to flag areas once counted. Once the team has finished counting an aisle, they will hand in their sheets and be given a set for another aisle of the warehouse. In addition to the above, to assist with the inventory counting, there will be two teams of counters from the internal audit department and they will perform inventory counts. The count sheets are sequentially numbered, and the product codes and descriptions are printed on them but no quantities. If the counters identify any inventory which is not on their sheets, then they are to enter the item on a separate sheet, which is not numbered. Once all counting is complete, the sequence of the sheets is checked and any additional sheets are also handed in at this stage. All sheets are completed in ink. Any damaged goods identified by the counters will be too heavy to move to a central location, hence they are to be left where they are but the counter is to make a note on the inventory sheets detailing the level of damage