Identify two key account balances at risk

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Reference no: EM132782849

Problem - You are the audit manager currently undertaking the planning of the audit for the financial year ended 30 June 2019 of Fancy Fashion Wholesale Ltd (FFWL), a large wholesaler of women's handbags.

You have the following additional information:

- FFWL is known for always having the latest and most fashionable products available. These products are purchased from both local and overseas suppliers.

- The company's market comprises large chain stores, established specialist handbag retailers and, more recently, 'upmarket' accessory booths located in major shopping malls.

- From the beginning of March 2019, most local purchases, at the request of FFWL's suppliers, have been on a Cash on Delivery (COD) basis.

It is now April 2019, You have performed preliminary analytical procedures using the 31 March 2019 management reports (ratios annualised in these instances) together with the audited figures for the previous two financial years (year end 30 June).

Year	Current ratio	Quick ratio	Accounts receivable turnover (days in accounts receivable)	Year-end Accounts receivable as a % of sales	Inventory turnover ratio	Sales returns as % of sales
2019	1.01	0.52	79 days	23%	3.3 times	2.9%
2018	1.13	0.61	61 days	18%	4.2 times	2.3%
2017	1.21	0.64	56 days	14%	4.8 times	1.6%

Required -

(a) Based on the information given, identify two key account balances at risk of material misstatement at 30 June 2019 and for each account,

(i) Identify the key assertion at risk for each account.

(ii) Identify 3 factors that justify your answer in a).

Ignore going concern issues in your answer.

(b) Identify two (2) factors presented in the above information that suggest FFWL may have a going concern problem for the year ended 30 June 2019?

Reference no: EM132782849

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