Question
You are the audit manager planning the audit of Truth Plc, located in West Malaysia. Quack Plc is a Singapore based subsidiary of Truth Plc.
You are the audit manager planning the audit of Truth Plc, located in West Malaysia. Quack Plc is a Singapore based subsidiary of Truth Plc. Quack Plcs primary function is to distribute industrial and domestic chemical products locally and overseas, while Truth Plc is responsible for the manufacturing of industrial and domestic chemical products. The market share of Truths products is currently 45 percent. Due to the increased market liberalisation of the Malaysian economy, there has been a significant increase in the importation of chemical products from the Middle East and China. This has resulted in the reduction of sales volumes and margins for Truth Plc.
The business model of Truth Plc is to transfer to Singapore at 2% above cost, the industrial and domestic chemical products manufactured in Malaysia. In January 2019, the directors of Truth introduced a new bonus scheme for its sales staff, based on their individual sales targets. As a result, a significant number of new wholesale customer accounts were opened by the sales staff, mainly from the United States and the United Kingdom. An introductory offer which is based on favourable credit terms was given to the new customers. The new customers for the industrial and domestic chemical products had to pay a deposit in advance when orders were placed. The year-end of Truth Plc is 31 December 2019.
Required:
As the audit manager, evaluate the audit risk of Truth Plc.
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