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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.

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.

Auditing: A Risk Based-Approach (MindTap Course List)
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
Chapter5: Professional Auditing Standards And The Audit Opinion Formulation Process
Section: Chapter Questions
Problem 40RQSC
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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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