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ACCTG456 (8)
Chapter 4

Chapter 4 In Class Questions_solutions.pdf

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University of Alberta
Trish Stringer

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. Required #1: Based on the background information, what are the major inherent risks in the Securimax audit? Consider both industry and entity risks in your answer. Industry level: - defence - high sensitivity of product information, customer information - Risk of selling to allies w
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