Risk assessment

Homework - 2
ABC Co manufactures sports equipment in its russian factory. Components are sourced from suppliers in
Europe, who invoice ABC Co in the Euro. Most items of equipment, such as tennis rackets, hockey sticks and
goals, take less than one day to manufacture. ABC Co's largest revenue generating product, ergometers
(rowing machines), takes up to one week to manufacture. ABC Co refurbished the assembly line for the
ergometers during the year. ABC Co uses a third party warehouse provider to store the manufactured
ergometers and approximately one quarter of the other equipment.
Historically, ABC Co has only sold to retailers. For the first time this year, ABC Co has made sales directly to
consumers, via a new website. The website is directly linked to the finance system, recording sales
automatically. Website customers pay on ordering. The website development costs have been capitalised.
This initiative was implemented to respond to market demands, as retailer sales have fallen dramatically in
the last two years. Some of ABC Co's retail customers are struggling to pay their outstanding balances.
Several of the sales team were made redundant last month as a result of the falling retailer sales.
ABC Co is planning to list on the stock exchange next year.
Draft statement of financial position for the year ended 31 December 2013 is presented below:

Non-current assets
Property, plant and equipment
Website development
Current assets
Inventory
Trade receivables
Cash and cash equivalents

Equity
Share capital
Retained earnings
Non-current liabilities
Long term loan
Current liabilities
Provisions
Trade and other payables
Accruals
Bank overdraft

31 Dec 2013

31 Dec 2012

5 350
150
5 500

4 164
0
4 164

2 109
2 040
48
4 197
9 697

1 555
1 520
49
3 124
7 288

2 100
2 959
5 059

2 100
2 156
4 256

2 800

1 500

240
1 400
18
180
1 838
9 697

195
1 205
12
120
1 532
7 288

Required: using the information above perform analytical procedures to define and explained audit risks
associated with the ABC Co.