Advanced Audit and Assurance Essay

These briefing notes evaluate the business risks facing Grohl Co, and identify and explain intravenous feeding risks of material misstatement to be considered in planning the audit of the financial statements for the yr ended 30 November 2012. In addition, two ethical issues are discussed and pertinent actions recommended.(i) Business risksImported goods tack rate fluctuationsGrohl Co relies on a key component of its performance process being imported from overseas. This exposes the fraternity to exchange rate volatility and consequentially cash f grim fluctuations. The ships company chooses not to mitigate this risk by using forward exchange contracts, which may not be a wise strategy for a business so reliant on imports. Exchange gains and freeinges squeeze out also cause volatility in profits, and as the company already has a loss for the year, any adverse movements in exchange evaluate may quickly increase this loss.Imported goods transportation issuesHeavy convictio n on imports means that transportation cost will be high, and with terminate costs continuing to increase this will put pressure on Grohl Cos margins. It is not just the cost that is an issue credit on imports is risky as supply could be disrupted collectable to aviation problems, such as the grounding of aircraft after volcanic eruptions or terrorist activities.Reliance on imported goods increases the likelihood of a stock out. Unless Grohl Co keeps a reasonable take of copper wiring as inventory, increaseion would bemuse to be halted if supply were interrupted, creating idle time and inefficiencies, and causing loss of customer goodwill.Reliance on single supplierAll of Grohl Cos copper wiring is supplied by one overseas supplier. This level of reliance is extremely risky, as any disruption to the suppliers operations, for example, due to financial difficulties or political interference, could result in the crushing of supply, leading to similar problems of stock outs and halted production as discussed above.Quality operate on issuesSince appointing the new supplier of copper wiring, Grohl Co has subsequently experienced lineament bear issues with circuit boards, which could result in losing customers (discussed further below). This may have been due to changing supplier as part of a cost-cutting exercise. wedded that the new supplier is overseas, it may make resolving the quality control issues more difficult. Additional costs may have to be incurred to batten down the quality of goods received, for example, extra costs in relation to electrical exam of the copper wiring. The companys operating margins for 2012 are already low at only 4% (2011 72%), and additional costs will put further pressure on margins. High-technology and competitive painsGrohl Co sells into a high-technology industry, with computers and mobile phones being subject to rapid product development. It is likely that Grohl Co will need to adapt quickly to changing demands i n the marketplace, but it may not have the resources to do this.