Reference no: EM132649139

Question - You are the audit manager of JDM, an accounting firm with offices in the Sydney metropolitan area. JDM is a middle tier auditing firm specialising in the audit of firms in the manufacturing and property development industries. During May 2020 you met with the audit senior of JDM, Tyrone Vickery, to discuss a number of findings and issues Tyrone has identified relating to several of JDM's clients.

Impact of business risk at Simo Ltd.

Simo Ltd is an Australian owned company that obtains and refurbishes second hand computer parts such as hard drives and motherboards. Recently Simo has begun using a new refurbishment technique which is claimed to be more effective and cost efficient. Simo has also made a decision to focus on the export market, and has been selling parts to several Indian companies where the parts are used in the manufacture of computers. Recently however, there have been delays in delivering the parts to India due to strike action amongst custom officials at Australian ports. The delays have angered Indian customers who have threatened to reduce the amounts owing by 15% because of lost production time. Adding further concern to Simo is that one of their customers, Calc Ltd, is claiming that the latest batch of parts they received was faulty, and are refusing to pay their account which is already 3 months overdue.

Sufficiency and appropriateness of audit evidence at Perkins Ltd.

Tyrone has indicated that he has completed testing on accounts payable and sales Perkins Ltd, a small manufacturer of confectionary goods. Tyrone has performed the following tests:

In relation to accounts payable, Tyrone selected a random sample of creditors from the accounts payable ledger and agreed these to statements, invoices and reconciliations. The balance of the accounts payable ledger was then agreed to the general ledger and the trial balance. Tyrone found no discrepancies.

A positive debtors confirmation was performed on the 30 June balances. Baker Pty Ltd had an outstanding balance as per the confirmation of $10,000, however in their reply they noted that they only owed $9,000. The difference is due to invoice 1938 dated 1 July 2020. Tyrone has noted that Baker's account appears to be overstated but the amount is immaterial and he has not performed any additional work.

Tyrone performed tests of control over payroll. Out of 50 items he found 4 breaches of control. Tyrone notes that as the errors were immaterial and the error rate was below 10% no further work is required as everything complied with the accounting standards and controls over payroll can be relied on.

Required - What are the business risk impact and the accounts (as well as the related assertions) most likely affected by the strategic decisions made by Simo Ltd.