Reference no: EM133113580

Question - You are auditing Galaxy Glass Ltd (Galaxy) for the year ended 30 June 2021. 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 supplier of the laser glass, Star Limited, went bankrupt due to the influence of COVID-19 pandemic (Star Limited is famous for producing high quality laser glass). The bankruptcy of Star Limited results in major product shortages. To meet the market demand, the CFO of Galaxy, Susan White, contacted her friend Andrew Smith. Andrew is the CEO of Smith Ltd which also produces laser glass. Smith Limited agrees to sell laser glass to Galaxy. There is no formal agreement in place with Smith Limited because of the good relationship between Susan and Andrew. You are concerned about the quality of laser glass that Smith Limited is supplying, because Smith Limited's products are new to the market and you have heard that some customers complaining that Smith Limited's products are of poor quality.

In reality, Smith Ltd is very slow in sending out invoices for goods it has delivered. Also, due to a quality control problem, many goods that Smith Limited 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. For each account balance identify the key assertion at risk.

3. Explain why the account balance and assertion are at risk.

4. Describe one (1) substantive test of detail that you would undertake for each account to address the assertion and risk identified.