In Class #4.1 – Assessing Inherent Risk & Assessing Preliminary Materiality
Securimax Limited (Securimax) has been an audit client for KFP Partners (KFP) for the past 15
years. Securimax is based in Waterloo, where it manufactures high-tech armour-plated
personnel carriers. Securimax often has to go through a competitive market tender process to
win large government contracts.
Its main product, the small but powerful Terrain Master, is highly specialized and Securimax
only does business with nations that have a recognized, democratically elected government.
Securimax maintains a highly secure environment, given the sensitive and confidential nature of
its vehicle designs and its clients.
In September 2011, Securimax installed an off-the-shelf costing system to support the hghly
sophisticated and cost-sensitive nature of its product designs. The new system replaced a system
that had been developed in-house, as the old system could no longer keep up with the complex
and detailed manufacturing costing process that provides tender costings. The old system also
had difficulty with the company’s broader reporting requirements.
The manufacturing costing system uses all of the manufacturing unit inputs to calculate and
produce a database of all product costs and recommended sales prices. It also integrates with the
general ledger each time there are product inventory movements such as purchases, sales
wastage, and damaged stock losses.
Securimax’s end of financial year is December 31.
Based on the background information, what are the major inherent risks in the Securimax audit?
Consider both industry and entity risks in your answer.
- defence - high sensitivity of product information, customer information
- Risk of selling to allies w