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Answered) You are an audit senior with Crampton and Hasaad and you are planning the audit of Mining supplies LTD (MSL) for the year ended 30 June 2015.


You are an audit senior with Crampton and Hasaad and you are planning the audit of Mining

supplies LTD (MSL) for the year ended 30 June 2015. MSL sells mining equipment and spare

parts to mining companies across Australia. MSL has operational centres in Perth, Newcastle,

and Mt. Isa. Each operational centre warehouses the equipment and spare parts and provides

sales and maintenance services. MSLâs head office is located in Melbourne where finance, IT

and other corporate services are provided. 

MSL has equipment purchase order contracts with a number of manufacturing suppliers

based in Europe, Us and China. These manufactures build the specialised, made- to-order

equipment and spare parts and ship them to MSLâs operational centres. 

Each item of equipment purchased by a customer comes with a two-year spare parts and

labour warranty from MSL. The warranty entitles the customer to a maximum of one free

maintenance service per year during the warranty period. 

Depending on the type of equipment and customerâs location, a maintenance service can take

between one day and one week. MSL uses contracted mobile mechanics who travel to the

customerâs location to carry out all maintenance services. Some services require the mechanic

to travel long distances, due to the remote locations. Any maintenance services that are inside

that are outside the warranty conditions are billed to the customer. The billing covers a daily

labour rate for the mechanicâs time, any parts replaced and reimbursement for travel,

accommodation and living expenses incurred by the mechanic. 

 

Required:

(a) In relation to the purchasing of equipment and spare parts, describe two business risks

to MSL that Crampton and Hasaad will consider in planning the 2015 audit( 5 Marks). (b) For each business risk identified in (a) describe a specific audit risk that could arise.

Each responses should include the identification of account balances that are

impacted directly by the audit risk ( 5 Marks).  

 


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