You are auditing Galaxy Glass Ltd (Galaxy). Besides producing glass, Galaxy also imports one special type of glass (laser glass) from Germany and sells them in Australia.

Two months ago, one major suppliers of the laser glass, Star Ltd (Star), went bankrupt due to the influence of COVID19 pandemic (Star is famous for producing high quality laser glass). The bankruptcy of Star resulted in major product shortages. To meet the market demand, the CFO Susan White contacted her friend Andrew Brown. Andrew is the CEO of Smith Ltd (Smith) which also produces laser glass. Smith agrees to sell laser glass to Galaxy.

There is no formal agreement in place with Smith because of the good relationship between Susan and Andrew. You are concerned about the quality of laser glass that Smith is supplying, because Smiths products are new to the market and you have heard that some customers are complaining that Smiths products are of poor quality.

In reality, Smith is very slow in sending out invoices for goods it has delivered. Also, due to a quality control problem, many goods that Smith supplied to Galaxy have been deemed faulty and have had to be returned to Smith with a request for credit.

1. Identify two key account balances at risk of material misstatement. (2 marks)

2. For each account balance identify the key assertion at risk. (2 marks)

3. Explain why the account balance and assertion are at risk. (4 marks)