Assignment 2 – Auditing 300 (Trimester 3A, 2013)

1. BestSteel Ltd has been the largest metal pressing machine manufacturer

in Australia since 2005, when it introduced a machine with technologies

few years more advanced than those offered by its competitors. From

thereon, BestSteel has been driving out competitors out of the market by

providing higher quality products at highly competitive prices. However,

a new entrant to the industry has recently introduced its latest innovation.

Based on the competitor’s advertisements, you are aware that the

competitor’s product is highly likely to be of better quality than 

BestSteel’s and due to their high end machinery, their production costs

are expected to be significantly lower. BestSteel’s management has

predicted that to the competitor’s product, their demand will drop by at

least 40%.

2. You are recently appointed as the auditor for Sprinkles Ltd. The

accountant of Sprinkles has been notorious for finding loopholes in the

legislations in order to make financial statements look presentable as

desired by the management. In the past few years, Sprinkles has always

been required by the Australian Tax Office to provide additional

supporting information after the lodgement of its tax returns.

3. BPharm Ltd is a family-owned company operating chemist shops in

Albany. Majority of the sales transactions are done in cash. BPharm is

planning to expand to Denmark and Walpole. It is applying for a loan

from the bank to get funding for the expansion. Before granting the loan,

the bank requires BPharm to provide them with the audited financial

statement.

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.