The client incurred 1.
1 million dollars on Proper assessment must be made on what costs
upgrading the website and hence there may be a
risk of costs not being properly allocated
between revenue and capital expenditure.
The company should only record the non-
current when the complete legal ownership is
transferred to the company i.e. all the assets
which is recorded must physically exist
The economic useful lives of the fixtures and
fitting have been increased by one year to four
years which may pose a risk of overstatement of
profits and non-current assets.
The credit period has been revised for a
customer who is struggling to pay a due of 1.2
million dollars. There is risk that the customer is
unable to pay but the management is stretching
the matter as it does not want to incur such a big
expense thereby overstating the profits and
liquidity of the company
Due to the new bonus package, there has been a
sudden increase in customer accounts and the
customers have been provided with very
favourable terms. Hence there may be an risk of
over-selling, as now due to conflict of interest,
the sales staff may have sold the goods on credit
without checking the creditworthiness
The company has been subject to a law suit due
to faultiness and causing a detrimental impact
on its customer’s profits. There is a risk that the
company will not properly record a provision for
this lawsuit and also a provision for the expenses
which it will incur while recalling the product
The finance director has asked the team to
complete the audit in shorter timescale. This
may compromise the audit quality and increase
the audit risk, that an unmodified opinion will
be issued to a false financial statements
are being capitalized and what costs are
expensed to ensure that assets are not
overstated and expenses are not understated
The auditor must perform verification checks
and physical checks to confirm the existence also
after the year end the auditor should check
whether the warehouse if included in PPE has
completed its legal process
Proper assessment must be made to check the
reasonableness of such changes of estimates and
explanation from director must be demanded.
The auditor must have a look on the financial
position of the customer and assess whether it is
reasonable to not write off the receivable. If no
then, the auditor must discuss this with
management. Also look at the credit terms and
assess its appropriateness and have a look on
the allowances made to address this matter if no
ask why
The auditor must increase the checking of after
date cash receipts and must check at the year-
end the proportion of cash that has been
recovered from the due customers.
The auditor must take a legal advice as to the
chances that the company shall be paying the
penalties. If it is probable, then the auditor
should read the claim by the customer and
discuss it with the management and the legal
experts to arrive at a proper value of provision.
The auditor should also assess the provision
made in respect of product recall and check its
correctness
The audit partner should refuse such requests,
and if forced by the management they should
either resign or issue a disclaimer of opinion