Reference no: EM133369996
Case Study: Your firm was appointed as auditor of GC Electrics Limited in 2020. GC Electrics sell retro vespas imported from Italy from two suppliers and have dealerships in Brisbane and Southport. The company's administrative functions, including human resources, finance and marketing are centralised at the office located in Robina. The individual dealerships manage their day to day operations. Sales invoices and other related financial data is imported directly into the centralised accounting software by the Group financial controller daily.
GC Electrics experienced significant growth prior to COVID due to people being more environmentally conscious, increased population and inner-city traffic. Sales in prior years were boosted by good economic conditions, solid employment growth and increasing petrol prices. Scooters were seen by customers as an affordable alternative to buying a car. Sales slowed due to the impact of COVID and more recently due to rising inflation and bank's tightening credit requirements making it harder for customers to obtain loans from external lenders. Consequently, the company started providing finance to customers during 2022. The CFO has advised the remuneration structure offered to sales staff is generous resulting in sales staff working hard to maximise their bonuses.
Due to the ongoing logistic disruptions arising from the COVID-19 pandemic, the company is experiencing delays. resulting in waiting periods for delivery extending up to four months. Consequently, some customers have cancelled their orders. Due to this behaviour, the company instituted a new policy whereby, instead of paying the minimum deposit, customers are required to pay fifty per cent of the sale price up front with the final payment due prior to delivery of the scooter. Cancellation of the order after the scooter has been shipped incurs a penalty of thirty per cent of the deposit paid.
Question: Discuss three risks that could impact the 31 December 2022 audit of GRE Electrics Limited; For each risk identified, identify key account balance(s) in the financial statements that may be at risk of misstatement