Reference no: EM132759622

You are the auditor of a manufacturer of ski equipment that at the beginning of the year was listed on the Australian Securities Exchange (ASX). The main reason for the listing was to fund a major expansion. Due to a poor ski season and first-time costs associated with the expansion, it appears that the company will be struggling to meet the forecast contained in the prospectus, which was required for the ASX listing.

• The company also has certain debt covenants in the form of return on assets, which it has difficulty in meeting. Major competition is from Unites States imports. Exchange rates against the Unites States Dollar (USD) are steady. However, the government has announced a cut in tariffs, which is expected to have an adverse effect on demand for locally produced equipment. You are also aware that the industry is consistently changing the shape and designs of skis.

• Your review of the control environment suggests a lack of mitigating controls. Your detailed review of the sales/trade receivable system shows that a listing of trade receivable balances is produced monthly and reviewed by the accountant. Analytics including variances from budget are produced for each salesperson and reviewed by the sales manager. The company has no formal follow-up procedure for customers who do not pay within the required 30 days.

Required:

Problem 1: Based on the above information identify FIVE business risks that the company is facing and explain why they constitute a significant risk. You also need to identify the account most affected.