Question (a):
Identified risks factors
Impact on financial reporting
Audit strategies
Nature of the business:
Pewter Oil Ltd is an oil distribution company and may be affected by the fluctuation of international crude oil price.
International oil price conversion may affect the revenue and relevant accounts.
Check the details of the conversion and transaction to make sure the accounts record the accurate price of the oil.
There exists a dispute between the company and the previous auditor on:
the proper valuation of year-end inventory;
The inclusion in sales of inventories that has not yet been delivered to customers.
There is potential risks that accounts may have been distorted by the management and closing procedures are inadequate in order to make the financial reporting and business more successful.
Omissions and non-disclosure information may result to the inaccurate financial report.
Revenue which is recorded before inventory is delivered will result in overstated revenue.
Asset may be overstatement or understatement.
Great risk that management’s assertion of recorded inventory exists may not be valid.
Contact the previous auditor and ask for the detailed information.
Scrutinize previous invoices, shipping slips, bank statements and payment records.
Auditor should spend more time on testing substantive transactions and account balance.
Do very detailed testing for this audit to ensure that asset and revenue cannot be overstatement and recorded in the appropriate period.
Suggest the company to set a new measurement system to enhance the internal control and count the numbers of inventory to avoid the misstatement in annual financial report.
The managing director, Vaughn Craddock is the principal shareholder of the company. There may exist a conflict of interest.
The managing director’ s niece Sheila Webb, as Financial Controller is responsible for all the accounting and administration of the company which means there is no...