Reference no: EM131046763

Audit Planning Memorandum-Strategy Part The following are three situations in which you are required to develop an audit strategy and prepare a partial strategy memorandum:

1 You are on the first year audit of Jaani, a medium-sized company of Parnu, Estonia, that is considering selling its business because of severe under-financing. A review of the acquisitions and payments indicates that controls over cash disbursements are excellent, but controls over acquisitions are not effective. The Jaani lacks shipping and receiving reports. They have no policy as to when to record acquisitions. When you review the general ledger, you observe that there are many large adjusting entries to correct accounts payable.

2 You are doing the audit of Lacplesis Bank, a small loan company in Latvia. It has extensive receivables from customers. Collections are an ongoing problem because many of the customers have severe financial problems resulting from adjustments to a capitalist economy. Because of these adverse economic conditions, loans receivable have significantly increased and collections are less than historical levels. Controls over granting loans, collections, and loans outstanding are considered effective. There is extensive follow-up weekly of all outstanding loans. In previous years, Lacplesis has had relatively few adjusting entries.

3 Cazadas Cooperative Vineyards with headquarters in Debreczen, Hungary, has inventory at approximately 40 locations in a two country region. The inventory can only be observed by traveling to the field locations by automobile. The internal controls over acquisitions, cash disbursements, and inventory perpetual records are considered effective. This is the sixth year that you have done the audit, and audit results in past years have always been excellent. The client is in excellent financial condition and is privately held.

Required: For each of the three situations above:

A. Write a risk analysis of the main risks for the Strategy Memorandum.

B. Identify difficult questions you would address in the Strategy Memorandum.

C. List the techniques for gathering evidence (inquiry of client personnel, observation, examination of documents, reperformance, confirmation, analytical procedures and physical examination) you would use in the audit.