You are auditing a manufacturing company ABC Co. with a profit before tax $2400,000, and the following information comes to light about your client: 1- ABC Co has significant plant and machinery which it uses to make its products. During the year the efficiency of the company's machinery was improved significantly. This was because a comprehensive review of each piece of machinery was undertaken and an assessment was made as to whether a minor repair, extensive refurbishment or a complete replacement was needed. ABC then took the appropriate action in each case and spent a total of $600,000 in doing so. 2. Following some ratios that obtained from the client, compared with the industry ratios Industry average Gross profit[% of total %42 sales) Credit Salesl% of total 75% sales) Receivables Turn over Inventory % of Total 24.7% 28.2% assets Inventory Turn over 2.15 1.75 2.21 Current Ratio 1.15 2018 2019 %65 40% 40% 35% 4.56 2.41 5.1 23.4% 2.31 2.35 Requirement: A- Considering the audit risk in planning the audit procedures, explain the main issue/s that should be focused on. "what are the main material misstatements risks that you should be prepared for when planning the audit"?? B- For each issue that you identify above, explain evidence that should be obtained
You are auditing a manufacturing company ABC Co. with a profit before tax $2400,000, and the following information comes to light about your client: 1- ABC Co has significant plant and machinery which it uses to make its products. During the year the efficiency of the company's machinery was improved significantly. This was because a comprehensive review of each piece of machinery was undertaken and an assessment was made as to whether a minor repair, extensive refurbishment or a complete replacement was needed. ABC then took the appropriate action in each case and spent a total of $600,000 in doing so. 2. Following some ratios that obtained from the client, compared with the industry ratios Industry average Gross profit[% of total %42 sales) Credit Salesl% of total 75% sales) Receivables Turn over Inventory % of Total 24.7% 28.2% assets Inventory Turn over 2.15 1.75 2.21
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