You are the audit supervisor in charge of Rolf Ltd. for the year ended 31 March 2023. The company is a new client, you have obtained some background information of the company before the acceptance of this new client.

The company has a factory in Shenzhen, China and a sales office in Hong Kong. The products are mainly exported to US market.

Due to the cost control program launched last year, the accounting department of the company downsized from six staffs to four only.

The company has a lot of overdue debtors balances as the US customers always delayed the payments, the slow payment pattern caused the company serious cash-flow problems and this problem has been continued for several years.

1

Required:

a) Explain the importance on the understanding of the audit clients

business and background. (16 marks)

b) List and discuss FIVE areas of information regarding the clients

background that auditors will be interested. (15 marks)

c) Discuss TWO sources from which auditors can obtain such

information. (6 marks)

d) Discuss THREE major audit problems of this client that you may

expect to encounter and explain what audit procedures would be

planned to perform. (15 marks)

e) List TWO standard activities auditors should perform before

starting a new engagement. (6 marks)