The potential risks with capitalizing the new website's development costs include overstatements if the costs do not meet recognition criteria set out in IAS38, such as ensuring future economic benefits are probable and costs can be measured reliably . Failure to meet these criteria could result in a misstatement of assets and earnings. Auditors must ensure the development costs are amortized correctly and continuously assess the recognition criteria to ensure compliance with IAS38, thus preventing possible overstatement of both asset values and profits .

The redundancy in the sales team may impact the audit by potentially affecting Murray Co’s financial performance and affecting control environments related to sales reporting . Auditors need to assess whether any redundancy-related liabilities are accurately captured in the financial statements. They should check procedures related to redundancy payments, recalculate the redundancy amounts for accuracy, and ensure necessary adjustments are made in the financial records .

Calculating WIP is challenging due to the complex nature and time span of production; for instance, erometers take significantly longer to produce than other equipment . Auditors should calculate WIP based on the percentage of completion method, utilizing supporting documents such as purchase invoices and labor records to substantiate the percentage claimed. Overhead calculation needs scrutiny to avoid overstatement. This method ensures all relevant costs are accurately captured and reduces the risk of material misstatement .

Auditors should assess whether the development costs of the new website meet the criteria under IAS38 for capitalization, ensuring accurate financial reporting. This includes verifying that all costs have been fully accounted for and amortized correctly . Auditors also need to review the standard operating procedures (SOPs) regarding transactions to ensure completeness and accuracy of records . Additionally, reviewing the audit trail and obtaining management's confirmation about redundant procedures is crucial to identify any potential overstatements or misstatements .

Evaluating the client’s provision for bad debts is crucial because many of Murray's customers are struggling to pay outstanding balances, posing risks of bad debts which can disrupt cash flow and misstate financial health if not accounted accurately . Auditors should review the client’s collection procedures and assess whether the provisions for bad debts are reasonable and align with the actual credit profile and payment history of the customers .

Wimble & Co identifies several audit risks, including the lack of prior audit experience with Murray Co, which increases detection risk due to potentially unknown issues with the opening balance . The use of third-party warehouses for storing inventory poses challenges in collecting sufficient audit evidence to verify the completeness, existence, and valuation of inventory, further increasing detection risk . Difficulties in valuing work-in-progress (WIP) and potential bad debts due to struggling customers are also noted, heightening the risk of material misstatements . Additionally, the introduction of a new website integrated with the finance and sales systems presents risks of misstatement if the systems are not properly audited .

Auditors should review the audit trail of transactions in the newly linked finance and sales systems to ensure completeness and accuracy of records . They must verify system integrations to ensure data transfers effectively and reflect accurate financial transactions. Checking the SOPs related to transaction handling and ensuring adequate controls are in place to detect any anomalies or missing entries are vital steps for ensuring accurate and comprehensive transaction records .

Additional audit testing and sampling are necessary to gain a thorough understanding of Murray Co's business operations and verify financial assertion reliability . As a new client, Wimble & Co lacks historical insight into Murray's operations, which increases detection risk. These procedures help auditors identify potential inaccuracies and gain assurance over the financial statement integrity by verifying data through comprehensive samples and cross-references with supporting documents .

To mitigate the risk of misstated opening balances, auditors should reconcile opening balances with the client’s previous year’s audited financial statements . Obtaining these prior statements helps to verify the accuracy of the opening figures. Auditors should also perform additional procedures such as reviewing the client’s internal controls related to financial statement preparation and personally inspecting inventories and other balance sheet items where feasible .

The use of third-party warehouses complicates the audit process as it becomes challenging to assess the completeness, existence, and condition of the inventory stored there . This difficulty in obtaining physical evidence increases detection risk since auditors may not be able to verify the actual quantities and conditions of inventory effectively. Ensuring accurate valuation and assertion of inventory under these circumstances requires additional audit procedures such as physical visits and reliance on stock count reports .