AMF Charitable

A. Identify the inherent risk in the operation of AMF….?

There are 2 Inherent risks in this scenario

1. Donations
o Donors own income is limited or declining. There is
no change is the circumstances
o No control in completeness of donations
Expenses
o Objective of AMF Donations are spent outside
o Donations are not spent as the donors want to spent
B.Effect on the audit of AMF
o It is difficult that the income in the future will be sufficient to
meet the expenditures of the AMF
o The audit report needed to be modified and qualify the lack
of evidence.
o Expenditure will be necessary to ensure that expenditure is
not ultra vires the objectives
o Donation received for specific purposes would have to be
checked to ensure that instructions of donors have been
followed…

Dynamic

Audit Risks
Overstatement of debtors
The period debtors reach to 4 months which is shows of a risk of
inadequate provision against doubtful debts
Overstatement / Understatement of inventories
The inventories turnover rates decreased to 3 times per year from
5 times in 2001 it indicates the risk

 Obsolescence of inventories
 Improper valuations of inventories

Overstating of Income as well as understating of expense

The income position has weak there is a risk that the
management may likes to overstate its revenue and
understate its expenses.

Liquidity Problems
The company has in liquidity problems so that the evidenced from
the decline in
 current ratio
 quick asset ratio
Decline Gross Profit
The decline in GP % needs to be justified, explanation may be
indicative of:
 Improper Pricing And Discounting Policies
 Improper purchasing policies
Going Concern
Losses decline in profitability and fast deteriorating liquidity
positions are financialy indicators of going concern issues which
should be not looked.