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List four areas of high inherent risk

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ASSIGNMENT -

Your firm has been approached by a listed company, ROB_PROB Limited (RBL), and asked if you will accept appointment as auditors for the year ending 31 December 2016 (it is now late November 2016).

RBL's Finance Director provided you with the following statement of financial position and income statement information which included actual figures for years ending 31 December 2013 to 2015, with estimated figures for 2016.

RBL produces gadgets. This was once a fairly profitable industry but both the size and profitability of the industry in Australia have declined significantly in recent years due to advanced technology and replacement products (which RBL is unable to produce with its existing plant and equipment). Over recent years a number of its competitors and customers have closed down and existing tariffs, quotas and import duties on imported gadgets have been scheduled to be abolished at the beginning of 2016.

RBL's factory closed in late November, pending the resolution of an industrial dispute (factory workers demanding a 15% wage rise and reduced hours). It is unlikely that work will resume prior to the Christmas shutdown and consequently the estimated figures for 2016 are not, in the opinion of the Finance Director, expected to change.

Required -

(A) The responsible partner for accepting new clients has requested you to prepare a preliminary analytical review on the information provided by RBL's Finance Director. The partner suggests that as a minimum you should provide him with the following information bearing in mind that any change above 10% is material.

(A: 1) Horizontal analysis for 2016 and 2015.

(A: 2) Calculate 2 liquidity ratios, 2 activity ratios, 4 profitability ratios and 2 solvency ratios over the period 2013 to 2016. Use the ratios to assess if the company has a going concern problem. (9 marks + 1 mark for presentation)

(B) List four areas of high inherent risk based on your findings in (a) above and explain how they could affect the financial statements of 2016.

Attachment:- Assignment.rar

Reference no: EM131640804

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