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Describe SIX (6) audit risks, and explain the auditor’s response to each risk, in planning the audit of Steel Wheel Bhd. ii)Explain the additional factors that the auditor should consider during the audit in relation to Steel Wheel Bhd’s in using the payroll service organisation.

Describe SIX (6) audit risks, and explain the auditor’s response to each risk, in planning the audit of Steel Wheel Bhd. ii)Explain the additional factors that the auditor should consider during the audit in relation to Steel Wheel Bhd’s in using the payroll service organisation.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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i） Describe SIX (6) audit risks, and explain the auditor’s response to each
risk, in planning the audit of Steel Wheel Bhd.

ii)Explain the additional factors that the auditor should consider during
the audit in relation to Steel Wheel Bhd’s in using the payroll service
organisation. 

Steel Wheel Bhd (Steel Wheel), manufactures classic cars tailored to high-end customers. You are the audit manager of Abdul, Salim & Co and you are currently considering of auditing Steel Wheel. The company's year-end is July 31, 2020, with a forecasted pre-tax profit of RM 1.5 million. The company is undertaking continuous production of its plant, as such by the end of the fiscal year, it is expected that the work in progress will be approximately RM850,000. To enhance the manufacturing process, Steel Wheel placed an order in April for new equipment and machinery valued RM620,000; one- third of the order was received in May and the rest is expected to be delivered by the supplier in late July or early August. Earlier this year, Steel Wheel received RM1.2 million patent, giving it the exclusive right to manufacture customised classic cars for five years. For this acquisition, Steel Wheel borrowed RM1.5 million from the bank, which is repayable over five years. In January 2020, Steel Wheel outsourced the processing of its payroll to third- party service provider Herron Bhd (Herron). Herron handles all parts of the payroll matters and submits monthly reports to Steel Wheel detailing payroll costs. Steel Wheel managed its own payroll until December 31, 2019, when it transferred the records to Herron. The company has a land and building revaluation policy and the chief financial officer has announced that all land and buildings will be revalued at the end of the year. In a review of the management accounts for the month of May 2020, you noted that accounts receivable has increased significantly relative to the end of the previous fiscal year, compared to May 2019. The chief financial officer has informed you that the company expects to lay off approximately 100 employees after the end of the year. However, decision on further announcement of this matter has yet to be made, most likely it will be before the end of the year.
Transcribed Image Text:Steel Wheel Bhd (Steel Wheel), manufactures classic cars tailored to high-end customers. You are the audit manager of Abdul, Salim & Co and you are currently considering of auditing Steel Wheel. The company's year-end is July 31, 2020, with a forecasted pre-tax profit of RM 1.5 million. The company is undertaking continuous production of its plant, as such by the end of the fiscal year, it is expected that the work in progress will be approximately RM850,000. To enhance the manufacturing process, Steel Wheel placed an order in April for new equipment and machinery valued RM620,000; one- third of the order was received in May and the rest is expected to be delivered by the supplier in late July or early August. Earlier this year, Steel Wheel received RM1.2 million patent, giving it the exclusive right to manufacture customised classic cars for five years. For this acquisition, Steel Wheel borrowed RM1.5 million from the bank, which is repayable over five years. In January 2020, Steel Wheel outsourced the processing of its payroll to third- party service provider Herron Bhd (Herron). Herron handles all parts of the payroll matters and submits monthly reports to Steel Wheel detailing payroll costs. Steel Wheel managed its own payroll until December 31, 2019, when it transferred the records to Herron. The company has a land and building revaluation policy and the chief financial officer has announced that all land and buildings will be revalued at the end of the year. In a review of the management accounts for the month of May 2020, you noted that accounts receivable has increased significantly relative to the end of the previous fiscal year, compared to May 2019. The chief financial officer has informed you that the company expects to lay off approximately 100 employees after the end of the year. However, decision on further announcement of this matter has yet to be made, most likely it will be before the end of the year.
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