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A) Ron Smith became the new CEO of PEAK Ltd, until he died unexpectantly. After his death, his daughter Amy became the new CEO of PEAK Ltd and embarked on a cost cutting exercise, which included a reduction in key staff in the credit department.
B) During the planning stage of the audit of PEAK Ltd, the audit senior assessed the sales control system to be effective. But when testing sales, the audit assistant traced 2 sales to supporting documentation (invoices) with dates for the prior financial year. For each of the two situations described above, please complete the following:-
SITUATION A - Outline briefly why the situation constitutes an audit risk. List and explain the component of the audit risk model affected. Indicate the key account balance(s) affected. Indicate the audit assertion(s) to be tested.
SITUATION B - Outline briefly why the situation constitutes an audit risk. List and explain the component of the audit risk model affected. Indicate the key account balance(s) affected. Indicate the audit assertion(s) to be tested.
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