i） Describe SIX (6) audit risks, and explain the auditor’s response to eachrisk, in planning the audit of Steel Wheel Bhd.ii)Explain the additional factors that the auditor should consider duringthe audit in relation to Steel Wheel Bhd’s in using the payroll serviceorganisation. Steel Wheel Bhd (Steel Wheel), manufactures classic cars tailored to high-endcustomers. You are the audit manager of Abdul, Salim & Co and you arecurrently considering of auditing Steel Wheel. The company's year-end is July31, 2020, with a forecasted pre-tax profit of RM 1.5 million. The company isundertaking continuous production of its plant, as such by the end of the fiscalyear, it is expected that the work in progress will be approximatelyRM850,000. To enhance the manufacturing process, Steel Wheel placed anorder in April for new equipment and machinery valued RM620,000; one-third of the order was received in May and the rest is expected to be deliveredby the supplier in late July or early August. Earlier this year, Steel Wheelreceived RM1.2 million patent, giving it the exclusive right to manufacturecustomised classic cars for five years. For this acquisition, Steel Wheelborrowed RM1.5 million from the bank, which is repayable over five years. InJanuary 2020, Steel Wheel outsourced the processing of its payroll to third-party service provider Herron Bhd (Herron). Herron handles all parts of thepayroll matters and submits monthly reports to Steel Wheel detailing payrollcosts. Steel Wheel managed its own payroll until December 31, 2019, when ittransferred the records to Herron. The company has a land and buildingrevaluation policy and the chief financial officer has announced that all landand buildings will be revalued at the end of the year. In a review of themanagement accounts for the month of May 2020, you noted that accountsreceivable has increased significantly relative to the end of the previous fiscalyear, compared to May 2019. The chief financial officer has informed you thatthe company expects to lay off approximately 100 employees after the end ofthe year. However, decision on further announcement of this matter has yet tobe made, most likely it will be before the end of the year.

Audit Risk Audit risk which describes as the chances of the risk of material misstatement or the…

Describe SIX (6) audit risks, and explain the auditor’s response to each risk, in planning the audit of Steel Wheel Bhd. ii)Explain the additional factors that the auditor should consider during the audit in relation to Steel Wheel Bhd’s in using the payroll service organisation.

Describe SIX (6) audit risks, and explain the auditor’s response to each risk, in planning the audit of Steel Wheel Bhd. ii)Explain the additional factors that the auditor should consider during the audit in relation to Steel Wheel Bhd’s in using the payroll service organisation.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 15RQSC

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