Question
Your firm was recently appointed as the external auditor of Best Car Components Sdn. Bhd. (BCC) for the year ended 31 December 2020. BCC is
Your firm was recently appointed as the external auditor of Best Car Components Sdn. Bhd. (BCC) for the year ended 31 December 2020. BCC is a manufacturer of car
components and has two factories in Malaysia, Ipoh and Johor. During the audit of the financial statements for the year ended 31 December 2020, the following issues in relation to inventories were identified:
(a) Goods received in the Ipoh factory are not checked prior to being accepted.
(b) With respect to the storage of materials prior to their use in the manufacturing of car components at Johor factory:
• Gold and platinum used in the manufacture of catalytic converters are not stored securely; and
• Poisonous chemicals used in the manufacture of car batteries are kept in open tanks in an area of the factory with unrestricted access
Required
i) External auditors are required to communicate significant deficiencies in internal controls identified during the audit to those charged with governance. Identify and explain the attributes that such communications should have to be effective.
ii) With respect to the internal control deficiencies described above, draft points for inclusion in your firm's report to those charged with governance and management of BCC. For each deficiency, you should outline the possible consequence(s) of the deficiency and provide recommendations to address them.
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