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Angora ltd (Angora) is a medium sized NZ company, primarily involved in wool processing and specialising in the production of angora wool. The company owns and maintains angora rabbit farms across NZ's North Island with headquarters located in wellington. The bulk of wool produced by the company is sold to three large and stable NZ based clients (garmer producers) with whom the company has enjoyed a good relationship for many years.

 

while covid has affected angoras customers there has been no significant drop in sales, Angoras bank however expressed concern about the extent of the company's reliance on just three local customers, in the light of potential covid 19 impacts. Angora responded by signing up to a recent trade show display held via zoom, which was attended by several international garmet producers based in China, South America, and Europe.

 

The Trade Show initiative was extremely successful and has been orders flood in from overseas buyers. the accountant. bruno has done his best to satisfy orders as quickly as possible while maintaining the appropriate (foreign currency) accounting records, however, from some of the questions has he has been asking you, you suspect he is out of his depth and that previously sound internal controls have not yet been fully updated for the recent changes, To cope with the increase in foreign sales, a new accounting technician, Stacy, has been hired to help bruno. Stacey has recently passed her NCEA school exams, including accounting and is highly motivated to develop a career as an accountant. While Angora's directors are pleased with developments. they note that they are now producing at 100% capacity. Angora's bank are pleased with progress, but indicate little interest in increasing loan/overdraft facilities to fund any expansion of angoras existing production capacity while covid 19 uncertainties persist.

 

required:

1. identify the three components of audit risk and explain the impact of the recent changes relating to new foreign sales on each of these components. include how at least two assertions are affected by recent changes.

 

2. explain the term 'materiality'

 

3. briefly explain the relationship between materiality and audit risk and illustrate this relationship with a references to the impacts on the audit risk explained in (1.)

 

4. Provide one example of a common base and percentage range for estimating planning materiality in an audit.

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