Question
You are an auditor on the GREEN Tech Limited (GREEN) audit engagement for the financial year ending 30 June 2018. GREEN specialises in the design
You are an auditor on the GREEN Tech Limited (GREEN) audit engagement for the financial year ending 30 June 2018. GREEN specialises in the design and manufacture of implantable hearing aids and invests more than twice the industry average in research and development. It is now April 2018 and while undertaking audit planning procedures you become aware of the following: GREEN has been developing its latest hearing implant, the P4, for a number of years. GREEN has invested heavily in research and development of the P4 and has capitalised a significant amount in relation to the development phase of the product. Market studies and prototypes of the P4 have proved successful for bringing it to the market. In July 2017, GREEN acquired two technologically advanced machines specifically designed for manufacturing the P4, at a cost of $15 million each. Production and sales of the P4 hearing implant commenced in October 2017, and demand for the product has been extremely high since its launch. GREEN has sold large volumes of the product and further manufactured a large stockpile of the P4 in anticipation of on-going high demand, and a substantial number have already been implanted in patients. There has recently been a sharp increase in incidences of the implant shutting down postsurgery, resulting in a number of patients commencing legal action against GREEN for damages and prompting the company to initiate a recall. Initial investigations reveal that the defect is attributable to a design flaw. It is likely that the product in its current form cannot be sold. Management of GREEN is confident that it will be possible to re-engineer the two machines acquired for the manufacturing of the P4 to enable production of its four other product lines and potentially for other products currently under development.
(a) Considering the information provided, determine the four key account balances and related assertions at risk. Briefly justify your answer. (14 Marks)
(b) Recommend one audit procedure in relation to each of the assertions identified above (6 Marks)
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