Auditing Assignment

Assignment 2 – Auditing 300 (Semester 1/Trimester 1A, 2014)

1. You are recently appointed as the auditor of PLK Pty Ltd, a paint manufacturing company.

Last year the board members decided that they need to expand their business and took the

decision to establish two more factories in Albany and Mandurah. They have already

consulted with their bank regarding the loan but since they have struggled to meet some debt

covenants of the past loans, the bank is quite reluctant to approve any new loans. However,

the directors are quite confident that they will find an alternative financial institution/bank

and if everything goes according to plan, the business will be right on track very soon.

2. Horizon Pty Ltd (HPL) has been running their timber manufacturing business in Australia

for the last 20 years. The transactions with both of their suppliers and distributors have been

managed manually and the old trustworthy employees of this company have been able to

perform the job to the satisfaction of the management and auditors. However, several of their

key employees in the accounting department retired and left the company last year and with

the growing volume of their business, they are now facing some significant issues in terms of

keeping adequate accounting records and maintaining a proper accounting database. This

year, HPL has decided to install a new accounting software to manage their transactions and

documentation.

3. During the last 12 months, Pure Water Designs Ltd (PWD) profits have increased because

of a significant drop in the cost of component parts from Germany as well as the introduction

of cost saving measures at the Perth assembly plant. PWD is involved in the design and

construction of water purification equipment. Sarah Button, the CEO of PWD, is very

confident that profits will continue to improve. Her optimism is based on the company’s

increased sales to Asian and European countries that now equate to 65% of PWD’s total

sales. One of the significant factors behind the improved sales to these countries is the fact

that international customers can settle their outstanding debts in their own foreign currency,

as well as the fact that the contract situation in overseas countries is often less politically

contentious. PWD is aiming to double its turnover over the next 2 years.

Required (a) Identify and discuss why the above situation represents a risk.

(b) By applying auditing knowledge, identify the main account or group of

accounts affected by this risk in the audit plan.

(c) Identify how the audit plan will be affected by the risks and recommend specific audit procedures to address these risks.

TOTAL 10 MARKS