Auditing case2:
audit planning and risk assessment of a scootertrader
Ivy Bishnoi is preparing a report for the engagement partner ofan existing client, Scooter Ltd., an importer of scooters and otherlow-powered motorcycles. Ivy has been investigating certain aspectsof Scooter Ltd.’s business given the change in economic conditionsover the past 12 months. She has found that Scooter Ltd.’sbusiness, which experienced rapid growth over its first five yearsin operation, has slowed significantly during the last year.Initially, sales of scooters were boosted by good economicconditions and solid employment growth, coupled with rising gasprices. Consumers needed transport to get to work and the high gasprices made the relatively cheap running costs of scooters seemvery attractive. In addition, the low purchase price of a smallmotorcycle or scooter, at between $3,000 and $8,000, meant thatalmost anyone who had a job could obtain a loan to buy one.
However, Ivy has found that the sales of small motorcycles andscooters have slowed significantly and that all importers of theseproducts, not just Scooter Ltd., are being adversely affected. Theonset of an economic recession has restricted employment growth,and those people who still have jobs are less certain of continuedemployment. In addition, the slowdown in the world economy hascaused oil prices to fall, further reducing demand for this type ofeconomical transport. Ivy has also discovered that, due to theglobal financial crisis, the finance company used by Scooter Ltd.’scustomers to finance. the purchase of scooters and motorcycles hasannounced that it will not be continuing to provide loans for anytype of vehicle with a purchase price of less than $10,000.
Required:
(a) Identify the issues that potentially have an impact on theaudit of Scooter Ltd.
(b) Explain how each issue affects the audit plan by identifyingthe risks and the financial statement accounts that require closerexamination
Source: Campbell et. al (2013), Cloud 9 Pty Ltd: An Audit CaseStudy, Canada:
