7097-4-56DRQ

AID: 1150 | 30/05/2013

a) & b)

Here are the following audit risks associated with the observations and how it is adjusted by the auditor at the plant during the tour. 1) The production line which is antique raises the questions for costing of product and allocation of overheads. The two additional lines are regularly automated, that might recommend that the traditional methods for allocating the overhead on the basis of direct labor hours might be unsuitable. Numerous potential risks are connected to this observation as under. The accounting of the idle machines: whether the idle machines should be written down to the disposal value or net realizable. The idling for the second production line: it has the implications intended for reduction of an inventory or the prospect production of the product or not. It indicates plans of management for modernizing or replacing the line or not.

2)

3)

At the time when the client is trading with the hazardous chemicals or may be alike products, the question is about the obedience to the environmental regulations and probable liabilities related to such disposal. The auditor should consider the necessity for collecting the information on the compliance of the client by the current environmental regulations and probable legal inferences for the non-compliance. This signifies the weakness in the overall control structure of the client. A disordered distribution center where the employees catch upon the items throughout the-peak times is disposed to the error. The auditor reflects increasing audit tests for gaining the assurance that the goods are sent on the time, are timely billed and properly identified at the correct price. This designates probable obsolescence of the items and the problems through the inventory management which might mirror on the other inventory area. It likewise signifies an opportunity for making the constructive references to client. The company must have official procedures for inspection of goods as they are collected. The lack of this kind of procedures can consequence in making payment for the goods that cant be utilized, or otherwise, the company may be using the goods which are faulty subsequently affecting the products probably returned for the warranty. There is no sign for the inspection or quality control for the goods which are confined in cartons that can cause the company making payment for such goods which are not received or utilization of goods that is not meeting the quality specifications. It does not certainly signify the problem in case the client is having the contract for the payment of goods which is perfect and is founded on goods that are actually used. The further influence is that the auditor is to develop the poles problematic method for auditing of the receipt and payment of these goods. Scarcity of the security signals the probable problematic with the inventory shrinkage. For the reason that the weakness in the procedures of control is the auditor must observe and the test the physical inventory at end of the year.

4)

5)

6)

7)

8)

9)