It is 20th May 2017. You are an audit senior in the accounting firm ADG Partners. You are currently planning the audit for WOW Electrical Ltd for their balance date of 30 June 2017. You have been given the following documents:
• Memo from the audit engagement partner Kate Jones dated 17th May 2017.
• Extract from the April 2017 issue of Business Review.
• Extract from the audit working paper for the previous year’s audit for WOW Electrical Ltd.
(1) Assess acceptable audit risk for the audit of WOW Electrical Ltd. (4 marks)
(2) For the completeness assertion of the purchases account, answer the following questions in accordance with the Australian Auditing Standards. You need to perform your analysis using the facts in the case study.
a) Assess inherent risk. (8 marks)
b) Assess control risk. (12 marks) Total marks for part 2 = 20.
(3) For EACH of the ratios given by the engagement partner in the memo:
a) Identify whether the ratio has improved or declined. What does this indicate? (2 marks per ratio, 8 marks max)
b) State 2 follow-up audit procedures (for EACH ratio) you would perform to identify if there may be a potential misstatement in the financial information. (2 marks per ratio, 8 marks max)
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