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Question

You are the auditor of RealCoffee Limited, a medium sized listed company

selling coffee beans and instant coffee to cafes and restaurants in Australia. The coronavirus crisis has affected the company's operations this year. Answer all of the requirements below. Assume each situation is independent of the other situations.

-Most cafes and restaurants had to close due to government restrictions during the coronavirus crisis. This had a significant effect on your audit client's sales.
-To qualify for the government's JobKeeper payments for employees, RealCoffee Ltd has to show that it experienced a 30% decline in monthly or quarterly turnover. Assume this is based on sales turnover.
-Over the last few years, the auditor finds that the audit client's management team enforces stringent quality control checks in order to provide customers with high quality products. The management team said they refuse to sacrifice product quality and safety to achieve higher profits.
-As the audit client's accounting staff are required to work from home, it becomes very difficult to authorise transactions with signatures on documents.

Analyse how each situation affects the components of the audit risk model and the amount of audit evidence required. E.g., whether there is an increase or decrease in inherent risk and briefly explain why.  Marks are only given if correct explanations are provided. You do NOT need to explain why a situation does NOT affect a particular component of the model.

Step-by-step answer

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Subject: Accounting, Business

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