Your recent review of management financial data for 2012/13 has shown the following key statistics:
FINANCIAL DATA
2013 2012
Members 1,324 1,128
New Members 212 54
Members exiting 100 38
Membership fee per year $960 $940
Membership Revenue 984,880 1,053,986
Sales commissions expense 44,980 34,670
Balance Sheet
30/06/2013 30/06/2012
$000 $000
Current Assets
Cash Assets 600 590
Inventory 50 40
Other current assets 10 10
Total Current Assets 660 640
Non-Current Assets
Property, plant and equipment 3,480 2,800
Total Non-Current Assets 3,480 2,800
Total Assets 4,140 3,440
Current Liabilities
Accounts Payable 430 350
Unearned revenue 120 90
Lease liability 350 310
Total current liabilities 900 750
Non-current Liabilities
Lease Liability 500 460
Secured bank loan 1,560 1,000
Total non-current liabilities 2,060 1,460
Total Liabilities 2,960 2,210
Net Assets 1,180 1,230
Equity
Share Capital 500 500
Retained earnings 680 730
Total equity 1,180 810
QUESTIONS
PART A
Since 4X Heavy Ltd is a new client of KCA outline the steps that you would initially undertake as part of taking on this client
PART B
Based on the facts specific to 4X Heavy Ltd:
(a) Identify the audit inherent risk and rate the risk as low, medium or high.
(b) Identify the audits control risk
(c) Evaluate control and inherent risk
(d) Determine overall audit strategy
PART C
a) Identify 2 key account balances that are at highest risk of misstatement
b) Explain why these are the highest risk
c) Design 4 substantive audit tests to carry out the work performed on each of the identified 2 key account balances.
d) For each of the 4 substantive audit test designed identify the key assertion it addresses.
PART D
(a) Based on the above make 4 recommendations to management on completion of audit.