Hong Kong Metropolitan University
香港都会大学

Lee Shau Kee School of Business and Administration
李兆基商业管理学院

ACY 8026BEF Advanced auditing
ACY 8026BEF 高级审核

(Summer Term 2024)
（2024 年夏季学期）

Assignment 2
作业 2

1. Assessment of risk of material misstatement at financial statement level 
1. 财务报表层面 的重大错报风险评估

(1) Global political environment
（1） 全球政治环境

First of all, the global geopolitical and economic problems have caused serious problems to the global economy, among which the War in Ukraine has disrupted the global industrial supply chain and increased the inflationary pressure, thus leading to the increase in borrowing costs. With the global economic downturn, the economic development of the industry of Lai Sun Garment will become slow [Does the company mainly focus on the overseas market?], which will ultimately affect the group's revenue and profitability.
首先，全球性的地缘政治和经济问题给全球经济造成了严重的问题，其中乌克兰战争破坏了全球产业供应链，增加了通胀压力，从而导致借贷成本上升。随着全球经济的下行，利新 集团的产业经济发展将趋于缓慢【公司主要主打海外市场吗？，这最终将影响集团的收入和盈利能力。

Consumer resistance
消费者抵制

Lai Sun Garment is a diversified group, mainly for film and television, music, clothing, hotels and restaurants and other places for investment, the main stakeholders are individual consumers, but due to the decline in the global economy, consumers are not satisfied for food and clothing, everyone for entertainment consumption desire is not strong, consumption ability is not high, will lead to the group's income is not high, with the increasing cost of sales, the final profits will continue to decline. [You may provide data to support]
丽新集团是一家多元化的集团，主要针对影视、音乐、服装、酒店和餐饮等场所进行投资，主要利益相关者是个人消费者，但由于全球经济下滑，消费者对吃和穿不满意，大家对于娱乐的消费欲望不强烈， 消费能力不高，会导致集团收入不高，随着销售成本的增加，最终利润会不断下降。 [您可以向支持人员提供数据]

The slow development of the industry
行业发展缓慢

Weak global trade has led to a sluggish property lease in 2023, while negative returns from the high interest rate environment have also affected the investment market. Among them, Lai Sun Garment has invested in a number of projects, which leads to the increase of its investment property losses in 2023. [You may provide data to support] Thus it will increase the debt, leading to the decline of solvency, financial risk will increase.
全球贸易疲软导致 2023 年物业租赁低迷，而高利率环境的负回报也影响了投资市场。其中，Lai Sun Garment 投资了多个项目，导致其 2023 年投资物业亏损增加。 [你可以提供数据来支持]这样就会增加债务，导致偿付能力下降，财务风险也会增加。

[You may also need to comment about how these factors will affect the risk of material misstatement in the financial statement]
[您可能还需要评论这些因素将如何影响财务报表中的重大错报风险]

Assessment of risk of material misstatement at assertion level
在断言层面评估重大错报风险

Existence [Existence is the assertion for account balance, for revenue, occurrence should be used instead]
存在[Existence 是 account balance 的断言，对于收入，应改用 occurrence 代替]

Because Lai Sun Garment is a diversified group, the investment projects are more and complicated [You may list out the income sources and discuss the nature of each] which will be very chaotic when confirming the total income, and there may be more writing or missing income. At this time, it is particularly important to confirm whether the income is real. The auditor can conduct a sample survey and compare sales invoices, sales contracts with bank payment records.
因为 La i Sun Garment 是一个多元化的集团，投资项目比较多且复杂[您可以列出收入来源并讨论每个收入的性质]，在确定总收入时会非常混乱，并且可能会有更多的记入或遗漏的收入。此时，确认收入是否真实尤为重要。审计师可以进行抽样调查，并将销售发票、销售合同与银行付款记录进行比较。

Accuracy
准确性

·Because there are many subsidiaries in Lai Sun Garment, above the company management may exist some problem, for example the management is not unified. And at the time of confirmed income, there are two ways to confirm, one is the accrual basis, the other is the realization system [What is realization system?], [You may refer to the accounting policies mentioned in the annual report] two different methods of confirm income can lead to the difference of income amount, so to determine whether the group income way is unified.
·由于华 阳集团旗下子公司众多，以上公司管理可能存在一些问题，例如管理不统一。而在确认收入时，有两种方式进行确认，一种是权责发生制，另一种是变现系统【什么是变现系统？，【可参考年报中提到的会计政策】两种不同的确认收益的方法都可能导致收益金额的差异，因此要判断集团收益方式是否统一。

·Lai Sun Garment has many businesses, which leads to both the increased complexity of contract costs and the increased risk of revenue inaccuracy. Therefore, auditors should focus on reviewing the group.
·Lai Sun Garment 业务众多，这导致合同成本的复杂性增加和收入不准确的风险增加。因此，审计师应专注于审查该组。

Audit strategy 
审计策略

·High control risk：Lai Sun Garment has a high internal risk. In the announcement in October 2023, Lai Sun Garment proposed that the company suffered a serious annual loss due to the decrease in property sales, HK $1.967 billion less than in 2022.[Jia, L. 2023, October 13]Because of the inheritance dispute of Lin Baixin, the late chairman of Lai Sun Garment, in 2024, the internal risk of Lai Sun Garment is very high. [How does this issue relate to control risk?]
·高 control 风险：Lai Sun Garment 具有较高的内部风险。在 2023 年 10 月的公告中，丽新 Garment 提出，由于物业销售减少，公司每年亏损严重，比 2022 年减少 19.67 亿港元。【贾大全 L. 2023 年 10 月 13 日】因为已故 Lai Sun GArment 董事长林百欣的继承纠纷，到 2024 年，Lai Sun GArment 的内部风险非常高。[此问题与控制风险有何关系？

·High inherent risk：At present, the new group in the environment risk is also very high. Because the current global economic downturn leads to the slow development of Lai Sun Garment industry. At the same time, the environment of high interest rate has a significant impact on the investment market. Lai Sun Garment has a lot of investment business, and the changes in the market will lead to the group at great risk.
·高 inherent risk：目前，新组群在环境中的风险也非常高。因为当前全球经济低迷导致 Lai Sun G零售业发展缓慢。与此同时，高利率的环境对投资市场也有重大影响。 Lai SunGarment 投资业务众多，市场的变化将导致集团面临巨大风险。

Therefore, I suggest the audit Lai Sun Garment with substantive strategy. Because Lai Sun Garment 's control risk and inherent risk are very high. It shows that the internal control system of the group is not perfect, so the data of financial statements may have the risk of fraud. At this time, the scope of sampling survey can be greater than 70%, so as to avoid the imperfect audit of the group。
因此，我建议 Lai Sun Garment采取实质性策略进行审计。因为 Lai Sun Garment 的控制风险和固有风险都非常高。它表明集团的内部控制制度并不完善，因此财务报表的数据可能存在欺诈的风险。此时抽样调查的范围可以大于 70%，以避免对集团的审计不完善。

Audit programme
审计计划

Due to the recent dispute of Lai Sun Garment over the estate of Lin Baixin, chairman of Lai Sun Garment, and the serious annual loss due to the reduction of property sales, it shows that the internal management system of the Group is not perfect and there are high internal risks. At this time, Lai Sun Garment needs the test of control to test the effectiveness of internal control [ As you are adopting substantive strategy, it may not be necessary to perform test of control], to see whether the internal control can find or prevent major misstatement in time, which can reduce the control risk. At the same time, based on the dependency strategy[ What is dependency strategy?], the group should do substantive procedures, the inspection of the major misstatements identified, including the details of various transactions, account balances and disclosures test.
由于近期丽新制衣就丽新制衣主席 林百欣的遗产发生纠纷，以及因物业销售减少导致每年严重亏损，可见本集团内部管理制度不完善，存在较高内部风险。此时，丽思宇制衣需要进行控制测试，以测试内部控制的有效性[由于您正在采取实质性策略，因此可能没有必要进行控制测试]，看看内部控制是否能及时发现或防止重大错报，从而降低控制风险。同时，基于依赖策略[ 什么是依赖策略？，集团应做好实质性程序，检查发现的主要错报，包括各种交易的细节、账户余额和披露测试。

·Existence [Occurrence]: When the revenue is recognized, the revenue may be fictitious, including the inventory as a sales account, the invoice and false invoicing and other practices. At this time, the auditor should review the group's sales contract and invoices, and compare them with the bank payment records to confirm whether the income is real.
·存在 [发生]： 收入确认后，收入可能是虚构的，包括作为销售账户的库存、发票和虚开发票等行为。此时，审计师应审查集团的销售合同和发票，并将其与银行付款记录进行比较，以确认收入是否真实。

·Completeness: The data of income may be incomplete, and there is a risk of omission. For example, uncertain income, the payment received as debt [Why receiving payment would increase the debt?], which will lead to debt increase, there is a financial risk. The auditor should conduct some sampling survey of the group and review the shipping documents, invoices and accounts.
·完整性：收入数据可能不完整，存在遗漏的风险。例如，收入不确定，作为债务收到的付款 [为什么收到付款会增加债务？，这会导致债务增加，存在财务风险。审计师应该对集团进行一些抽样调查，并审查运输文件、发票和账目。

·Rights and obligations [This assertion is related to account receivable instead of revenue]: The right of the Lai Sun Garment to own and control accounts receivable. The auditor should review whether the group's accounts receivable are exist.
·权利与义务[此主张与应收账款而非收入有关]：丽新制衣拥有及控制应收账款的权利。审计师应审查该集团的应收账款是否存在 。

·Accuracy, valuation and allocation[This assertion is related to account receivable instead of revenue]:: Auditors can check the original vouchers, such as sales invoices, receipts, and contracts. The auditor can also check the account table to ensure that the amount is consistent. Check the sales records and check the accounts with the customers.
·准确性、估价和分配[此断言与应收账款相关，而不是收入相关]：： 审计员可以检查原始凭证，例如销售发票、收据和合同。审计师还可以检查账户表以确保金额一致。检查销售记录并与客户核对。

·Classification: For the classification of income, the auditor can first understand the service classification of the group, then check the subsidiary account of income, and compare whether the income classification in the subsidiary account is consistent with the description of the original voucher.
·分类：对于收入的分类，审计员可以先了解该组的服务分类，然后查看收入的子账户，比较补贴账户中的收入分类是否与原始凭证的描述一致。

·Presentation: The group may not explain the data clearly and detail when disclosing them. Auditors can review the presentation of income items in the income statement to ensure that the disclosure is clear and accurate, so that the users of the financial statements can understand the content.
·介绍：该小组在披露数据时可能无法清楚地解释和详细解释数据。审计师可以审查损益表中收入项目的列报，以确保披露清晰准确，以便财务报表的使用者能够理解内容。

[Overall, your work has demonstrated a good understanding of the key risk factors affecting Lai Sun Garment's financial reporting, but the analysis could be strengthened by providing more quantitative evidence, clearer explanations of the linkages between the risk factors and the financial reporting risks, and a more structured and detailed audit strategy and program]
[总体而言，您的工作表明您对影响丽新制衣财务报告的关键风险因素有很好的理解，但可以通过提供更多定量证据、更清晰地解释风险因素与财务报告风险之间的联系以及更结构化和详细的审计策略和计划来加强分析]

Reference
参考

[1].Jia, L. (2023, October 13). Lai Sun Development: Expected 2023 Loss of HK $2.9 Billion to HK $3.05 Billion. Dagong. Com. https://www.takungpao.com/house/dichan/2023/1013/902159.html
[1]。贾丽新（2023 年 10 月 13 日）。 丽新发展：预计 2023 年亏损 29 亿至 30.5 亿港元。 大公.https://www.takungpao.com/house/dichan/2023/1013/902159.html 公司

[2].Annual Report 2023. https://www1.hkexnews.hk/listedco/listconews/sehk/2023/1116/2023111600860.pdf
[2]。 2023 年年度报告。https://www1.hkexnews.hk/listedco/listconews/sehk/2023/1116/2023111600860.pdf