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Your audit client, Titan Homewares, is an Australian proprietary company that derives most of its revenue from retailing homewares through its operations in all capital

Your audit client, Titan Homewares, is an Australian proprietary company that derives most of its

revenue from retailing homewares through its operations in all capital cities. Titan stocks a range

of homeware products including china, cooking utensils, crockery, cutlery, glassware;

kitchenware, picnicware and plastic containers.

You are in the process of assessing the risk of material misstatement at the financial report and

assertion level as part of your audit planning for the year 20X7-X8. Through enquiries of

management and others within Titan, observation and inspection and through performing

analytical procedures, you have flagged the following information which in your opinion might

affect the risk of material misstatement.

Number

Factor

1

On 12.08.20X7, in a move to provide incentives for better performance to store

managers, the board decided to link their pay to performance. Under the new

remuneration scheme, every store manager is now given a profit target to

achieve and a bonus of S10,000 upon achievement of the target. The store

managers are further eligible to 1% of profits if their store protits exceed the set

profit target.

2

As of 15.09.20X7, the internal audit team was reduced from five accountants to

three during the year. It now comprises of an internal auditor and two graduates.

The internal auditor is a CPA with 4 ycars of experience in the internal audit

department. While one of the graduates is working towards completion of the

CPA program, the other plans to gain some work experience before deciding

upon a future course of action.

3

The increased use of online shopping has instigated the move towards setting

up an online store. On 05.01.20X8, the company engaged XYZ consultants to

set up its online store. The board has started discussions to close its three loss

making stores.

4

Due to increased competition from major department stores, which largely

compete on price, the company decided to heavily discount its merchandise as of of 25.02.20X8.

5

The company upgraded its central information system on 30.03.20X8. The

system provider has trained the company's staff to effectively operate the

system.

Required:

  1. Identify whether each of the identified factors above would increase, decrease or have no effect on the risk of material misstatement. Explain your identification
  2. Describe the impact of each on the financial report.

Your audit client, Titan Homewares, is an Australian proprietary company that derives most of its

revenue from retailing homewares through its operations in all capital cities. Titan stocks a range

of homeware products including china, cooking utensils, crockery, cutlery, glassware;

kitchenware, picnicware and plastic containers.

You are in the process of assessing the risk of material misstatement at the financial report and

assertion level as part of your audit planning for the year 20X7-X8. Through enquiries of

management and others within Titan, observation and inspection and through performing

analytical procedures, you have flagged the following information which in your opinion might

affect the risk of material misstatement.

Number

Factor

1

On 12.08.20X7, in a move to provide incentives for better performance to store

managers, the board decided to link their pay to performance. Under the new

remuneration scheme, every store manager is now given a profit target to

achieve and a bonus of $10,000 upon achievement of the target. The store

managers are further eligible to 1% of profits if their store protits exceed the set

profit target.

2

As of 15.09.20X7, the internal audit team was reduced from five accountants to

three during the year. It now comprises of an internal auditor and two graduates.

The internal auditor is a CPA with 4 ycars of experience in the internal audit

department. While one of the graduates is working towards completion of the

CPA program, the other plans to gain some work experience before deciding

upon a future course of action.

3

The increased use of online shopping has instigated the move towards setting

up an online store. On 05.01.20X8, the company engaged XYZ consultants to

set up its online store. The board has started discussions to close its three loss

making stores.

4

Due to increased competition from major department stores, which largely

compete on price, the company decided to heavily discount its merchandise as of of 25.02.20X8.

5

The company upgraded its central information system on 30.03.20X8. The

system provider has trained the company's staff to effectively operate the

system.

Required:

  1. Identify whether each of the identified factors above would increase, decrease or have no effect on the risk of material misstatement. Explain your identification
  2. Describe the impact of each on the financial report.

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