Question 1
(a) First and foremost, Tech Ltd seems at inherent risk due to excessively reliance on computer systems. If the electronic data exchange system has been compromised, it stands a chance to program fraud, destruction of records and documents security problems.
Besides, Mr. Abbot believed that introducing of garment labels will increase sales revenues, but he had no relevant experience in this industry because he never understood the business model and conduct assess, it is easily lead to risks of material misstatement.
Worse still, Tech Ltd could be exposed to control risk resulted from the internal control. As an individual store which unauthorized raises the inventory requisition, it is not uncommon for the owners to use the store
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To have better internal control, the company not only has a good computer system to keep track of information, also need to have a paper backup to deal with the case of sudden needs. It is necessary to ensure that backup to verify records and reconciliation of invoice, purchase order, and receiving documents to assure correct payment amount.
To test for the existence of inventory, that inventory shall be included in the balance sheet when it physically exists. The inventory represents items held for sales in the normal course of business. The company can observe inventory count and personally perform test counts to verify counts.
To test for the accuracy of account payable, the auditor can verify the prices, quantity and computation on suppliers' invoice. All purchases amounts and the other data should be appropriately
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It causes by the management want to have an impressive financial statement. Also, the integrity of management would affect the accuracy of the financial statements due to fraudulent financial report and window dressing of income statement.
Question 3
(c) Inherent risk and control risk is high due to the inefficient internal control system and an unreal financial statement as desired by the clients, thus the auditor shall use the substantive approach.
In order to test the existence of accounts receivable, the auditor may send an acknowledgment to the company's debtors to confirm the balance in year-end date exists.
For testing whether the sales transaction occurred, and correctly recorded, the auditor should track down and confirm sales journal to the original documents.
Allowance for doubtful accounts can facilitate management to control. Therefore, auditors need to assess whether an allowance for bad debts is appropriate, and compare previous year's business environment is