Auditing and Assurance Services (ACCG340)

Your audit client is Battery Bikes (BB), a retailer of electric bicycles with a single store in the Sydney CBD. BB imports bikes from all over the world, including the USA, Europe, and Asia, and sells over 50 varieties. BB believes that there is a huge potential market for these products and is currently in discussions with various banks to secure significant additional finance. The electric bike market is constantly evolving and highly competitive. BB's main competitor (Powered Pedals) has shops in every capital city, and there are rumors that Powered Pedals have bought the rights to be the exclusive seller of the Edisonic, the world's most sophisticated and popular electric bike. 
 

1/ Provide two business risks faced by BB. (2 marks)
 

2/ Explain and justify your assessment of the Inherent Risk for the accuracy, valuation and allocation of inventory for BB, giving two reasons. (2 marks)
 

3/ For ONE of the inherent risk examples you provided in the previous question, state a preventative OR detective control and state how you would test that control. (2 marks)
 

4/ You have assessed Control Risk in relation to the valuation of BB's inventory as medium. You have almost completed your controls testing and have not found any exceptions. However, from your initial review of the BB inventory report, you have noticed that the carrying value of one bike is negative.  

(a) Provide an example of an IT input control that may have prevented this error and explain how you would test this control (2 marks); 

(b) Provide an example of an IT output control that may have detected this error  and explain how you would test this control (2 marks); 

(c) Explain 'parallel simulation' and discuss whether parallel simulation would be useful in determining whether the error is pervasive. (2 marks);

(d) After undertaking additional testing you have determined that this is a one-off error. Discuss how this finding will change your planned nature, timing, and extent of audit testing in relation to BB's inventory. (2 marks)