Reference no: EM132669736

Elliott Led operates a road maintenance company. Consider the following information.

1. Your firm has just been appointed auditor of Elliott at its annual general meeting. During your planning of the audit, you notice that Elliott is an unlisted public company and its directors do not consider it to be a reporting entity. Elliott has prepared special-purpose financial reports for the past 5 years. It has significant bank debts and is required to lodge audited accounts with its bankers within 90 days of year-end.

2. Elliott recently won a substantial contract to perform road maintenance work for the Queensland government for the next 3 years. As a result of winning the contract, to meet the increased demands and satisfy the specialised nature of the work for the government, Elliott purchased additional machinery. The machinery has an expected life of 10 years.

3. Elliott is also involved in the manufacture of backyard water tanks. A revolutionary process developed a couple of years ago has enabled Elliott to build a tank far superior to any of its competitors, at half the price. It has therefore dominated the market over the past few years. However, you recently read a weekend newspaper and saw an article previewing Elliott's main competitor's new tank. It is made of a new material called Lycrafon, will be superior to Elliott's tanks, and cost 25% less.

Required

Problem (a) Discuss why each of the three situations represents a risk.

Problem (b) Identify the main account or group of accounts affected by these risks and how the specific aspects of the audit plan would be affected by these risks.