You are the audit partner for YE Partners. Your firm has been newly appointed auditor for ZNA Baking Ltd, a manufacturing entity for wholesale baked goods, for the 30 June 2021 audit. This is your first year auditing this client which you personally acquired as the CEO is your brother in law and the Board of Directors were happy you were able to quote an audit fee 50% less than the other accounting firms who also submitted tenders.
It’s the planning phase of the audit and you just became aware that a new competitor of ZNA Baking Ltd entered the market half way through this financial year. Covid has meant that more people are staying home and cooking so sales have declined considerably since the last financial year. At the dinner table the other night your brother-in-law joked some creative accounting will be necessary to ensure he gets an equal bonus as the previous year.
a) Discuss how you would assign planning materiality for this financial audit (10marks).
b) Identify and discuss all the potential audit risks based on the case facts (20marks).
c) Identify the main accounts affected and design specific audit procedures, state the assertions that will be tested with the procedures (20marks).
