Reference no: EM132959479

You are an audit manager at J&W. Your firm are providing audit engagement for Kristodd Ltd, a manufacturing company (the Company) for the year end 31 December 20X0

a, Whenperforming risk assessment in planning for the audit, you discovered that:
-In December 20X0, the Kristoff placed orders for two new machines which will be used for production, estimated total cost of those machines is $15m and the company is not sure whether they will be received by the year end.
-The company has spent an estimated $1.2m on refurbishing their existing plants.

b, When evaluating internal controls of salessystem, you discovered that:
-goods are dispatched via local couriers, however, the complaints about the delay between sale orders and receipt of goods. Kristoff Ltd has investigated these and found that, in each case, the sales order had been entered into the sales system correctly but was not forwarded to the dispatch department for fulfilling.

c,Receivables at year date is $4.2 million which is significantly higher as compared to balance of $2.2m in last year. You are required to perform substantive procedures in respet of Kristoff's receivables balance.

d,The Receivable balances of Kristoff at 31 December 20X0 included a debt of $50.000 due from customer A that went to bankruptey in March 20X1. The Director of Kristoff refuse to make any adjustment with regard to this debt to financial statement as at 31 December 20X0 as the customer did not enter liquidation until after the year end. Kristoff's draft financial statement shows a pre-tax profit of $600,000.

Required:

(i) Identify and explain audit risks associated to the information (a) and propose audit response to each risk.

(ii) Identify deficiencies in the sales system given in information (b) of Kristoff Ltd, explain the possible implications of these; and suggest a recommendation to address each deficiency.

(iii) Describe audit substantive procedures you would perform in relation to receivables of Kristoff Ltd. (Where possible you should perform the procedures that you describe based on the information (c) provided)

(iv) Discuss the issuegiven in (d), including an assessment of whether it is material; and describe the impact of the audit report if the issue remains unresolved in both cases.