i)  The following business risks are noted from the           scenario:

• Currency Exchange Risk: Divine travels to South Korea to buy goods for resale, and the currency exchange rates may fluctuate. This can result in exchange rate losses that could negatively impact the company’s finances.
• Risk of Mispricing Goods: There is a risk that the goods procured may be priced incorrectly, either underpriced or overpriced, which could distort profitability.
• Unrecorded Loans: Loans are contracted but not recorded. This could lead to the actual loan amounts not being properly accounted for, which could distort the financial position of the company.
• Misclassification of Sales and Loans: Banked loans may be recorded as sales, or vice versa, distorting the financial records of the company.
• Unrecorded Expenses: Expenses such as air tickets and hotel bills are not receipted, which increases the risk that these expenses may be understated in the financial records.
• Understated Sales: Although most of the sales are banked, inadequate record-keeping (as evidenced by scanty records in the sales notebook) could lead to sales being understated.
• Control Risk: The reliance on the vigilance and strictness of the owners instead of a formal internal control system creates a control risk, where inadequate controls could lead to errors or fraud.
• Documentation Risk: Inadequate documentation and record-keeping practices may lead to difficulties in tracking and verifying business transactions.

ii)

When planning the audit for Unbalanced and Co. Ltd., the following general factors should be considered:

• Industry Nature: Understand the nature of the industry, including typical profit margins, regulatory framework, and any tax obligations or concessions applicable to the industry. This helps assess how income and expenditure are recognized.
• Management’s Experience: Assess the experience and literacy levels of the directors, particularly Divine and Grace. Evaluate how often they travel for procurement, their profit expectations, and their personal and business expenditures.
• Internal Controls: Review the controls established by the owners to monitor business activities, such as how sales, imports, purchases, and expenses are tracked. Evaluate if there are effective measures to prevent loss of inventory or funds.
• Review Past Accounts: If available, examine the company’s previous financial accounts to identify any trends, issues, or risks that may affect the current audit.
• Risk Evaluation: Isolate and evaluate the risks that could impact the financial statements, ensuring that the accounts are prepared by an independent person, if possible, to avoid potential biases or errors.

(5 marks)