You are an assurance services senior at Bailey & Associates and have noted the followingindependent issues in relation to the audit of Sleek Ltd:The accounting system at Sleek Ltd did not operate effectively during the first year ofoperations. Consequently, some general ledger accounts had to be based on estimates,as the actual data relating to these balances had been lost.(i)(ii)As a result of cost constraints, the directors of Sleek Ltd did not implement effective internalcontrols for debt collection. The debtors' tunover is 3.2 times.(iii)Due to increased competitive pressures, Sleek Ltd has recently moved the manufactureof some of its clothing lines out of Melbourne into regional areas. While Sleek Ltd savesaround 20% in costs, the manufacturing process takes longer and on several occasionslate delivery has resulted in lost sales.Required:Explain the impact of each of these separate issues on your assessment of audit risk, themateriality level and the audit strategy that would be adopted.

Audit risk is described as the risk which the auditor expresses an opinion of inappropriate audit…

urance services senior at Bailey & Associates and have noted the followi independent issues in relation to the audit of Sleek Ltd: (i) The accounting system at Sleek Ltd did not operate effectively during the first year operations. Consequently, some general ledger accounts had to be based on estimate as the actual data relating to these balances had been lost. As a result of cost constraints, the directors of Sleek Ltd did not implement effective interm controls for debt collection. The debtors' tumover is 3.2 times. (ii) (ii) Due to increased competitive pressures, Sleek Ltd has recently moved the manufactu of some of its clothing lines out of Melbourne into regional areas. While Sleek Ltd sav around 20% in costs, the manufacturing process takes longer and on several occasio late delivery has resulted in lost sales. Required:

urance services senior at Bailey & Associates and have noted the followi independent issues in relation to the audit of Sleek Ltd: (i) The accounting system at Sleek Ltd did not operate effectively during the first year operations. Consequently, some general ledger accounts had to be based on estimate as the actual data relating to these balances had been lost. As a result of cost constraints, the directors of Sleek Ltd did not implement effective interm controls for debt collection. The debtors' tumover is 3.2 times. (ii) (ii) Due to increased competitive pressures, Sleek Ltd has recently moved the manufactu of some of its clothing lines out of Melbourne into regional areas. While Sleek Ltd sav around 20% in costs, the manufacturing process takes longer and on several occasio late delivery has resulted in lost sales. Required:

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter7: Planning The Audit: Identifying, Assessing, And Responding To The Risk Of Material Misstatement

Section: Chapter Questions

Problem 22RQSC

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You are an assurance services senior at Bailey & Associates and have noted the following independent issues in relation to the audit of Sleek Ltd: (i) The accounting system at Sleek Ltd did not operate effectively during the first year of operations. Consequently, some general ledger accounts had to be based on estimates, as the actual data relating to these balances had been lost. (ii) As a result of cost constraints, the directors of Sleek Ltd did not implement effective internal controls for debt collection. The debtors’ turnover is 3.2 times. Required: Explain the impact of each of these separate issues on your assessment of audit risk, and the audit strategy that would be adopted.
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