Risk Assessment for Almond Limited Audit - ACCT3000 Semester 1, 2019

This memo, prepared by an audit senior, presents a preliminary examination and risk assessment of Almond Limited for the 30 June 2018 audit, adhering to ASA 315 and ASA 300. The assessment identifies key risks, including delays in shipments, quality issues with a major customer, IT problems, and declining forex rates, impacting accounts like debtors, creditors, and forex balances. The memo recommends specific audit procedures to address these risks, such as verifying customs delays, analyzing customer complaints, assessing IT system inefficiencies, and reviewing the company's forex hedging strategies. It also addresses concerns about internal control weaknesses, including the CEO's dismissal of internal auditor suggestions. The memo provides a framework for audit planning, emphasizing the importance of addressing key audit matters and considering the going concern concept.

ACCT3000 AUDITING SEMESTER 1, 2019
2019

MEMO
Ref:
TO: Audit Manager
From: Audit senior
Date: xxxxxxx
Subject: Almond Limited
Introduction and Scope
This memo is based on my preliminary examination and assessment of Almond
limited for the purpose of audit for 30 June 2018
which is as per Australian Standards on audit related to risk assessment which
are ASA 315: Identifying and assessing the risk of material misstatements
through understanding the entity and its environment and ASA 300: Planning an
audit of a financial report.
This memo involves few recommendations; I have made for the audit planning
and procedures
Risk Assessment
Delay in shipping, faulty production, issue with financial reporting (IT) and
declining forex rates between China and US would mean key account balances
that are debtors, creditors and forex balances should be considered during the
course of audit.
 Custom official delaying shipments of the company: during the course of
audit the reasons behind sudden delay in shipments of the company by
custom official needs to be assessed and external verification of various
notices and relevant orders if any made by the customs department to the
company needs to be analysed (Alexander 2016).
The concern of the company has to be understood regarding competition
and have to check the possible flaws in regulations that are affecting the
company’s shipments and reported to the management.
The shareholders have be informed by considering the matter a key audit
matter if it is significantly affecting the financial condition of the company,
disclose whether it is affecting the going concern concept as competition
is increasing cutting down current customer base as per ASA 250
Consideration of Laws & Regulations (Bromwich and Scapens 2016).
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 Almond’s Customer Super Dairy Limited (SDL) claiming the quality of milk
is not as per standards:
Audit has to be conducted on the process involving manufacture of milk
based on the compliance requirements and ASA requirements, which
includes internal audit work analysis and taking the help of an expert in
the field of milk production/manufacturing (Kew and Stredwick 2017).
This further has to be analysed for any other queries received from any
other customers as it could be a major contingent liability for the company
being due ranging to more than five months of amounts from the debtors
which could affect the financial performance of the company.
Provisions made and assumptions taken for recognising the sale of milk to
these customers have to be checked to see their accuracy and identify
whether proper explanation for such judgements are available with the
management.
External confirmation can be taken from various customers for further
investigation of such issue to check to what extent this has happened
(Raiborn, Butler and Martin 2016).
An audit being restricted to financial terms but performance audit can be
conducted after communication with those charged with governance along
with the audit committee in order to reduce the risk involved in the audit.
Certifications if related to such production process have to be reviewed to
check whether those certifications are up to date and renewed periodically
through conducting audits on production.
 Issue with Information Technology in reporting/storing financial
information:
This is a critical factor to be considered during audit as this could result in
waste of workforce and resources which could also delay operations and
cause irregularities in financial reporting, as this is related to creditors an
external confirmation as per ASA 505 can be sought to check for the
deviations and the estimation of number of errors occurred because of
such issue (Lessambo 2018).
Computer aided audit tools (CAAT) can be used to check for the
inefficiency of system, audit through the computer needs to be done by
test check and audit trail have to be checked for its accuracy (Sithole, et
al. 2017).
The problem needs to be taken up with those charged with governance in
case this is a serious issue as it would relate to huge loss of revenue to the
business and communicate to the internal auditors for implementing a
better monitor on such process
 The decline of china currency yuan to that of US currency $ is one of a
major concern for the business as this would affect the revenue potential,
at present based on the assessment the company is able to invoice bills in
terms of dollars to the Chinese customers which the dollars will be
received after shipment is done and a gap of one month after shipping for
making payment will cause a decline in revenue to the company as the
forward rates are also dropping to Chinese yuan with US $. Here the
auditor has to make an estimated loss and the extent of debtors under
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this issue and review the process of forex trading accordingly to check
whether proper due diligence is made by the finance team of the company
in invoicing the product in US $. He also needs to check whether proper
hedging is done by the company by taking a forward cover or money
market cover which is essential for controlling loss due to market forces
(Fay and Negangard 2017).
 CEO kept declining the internal auditor suggestions for improvement:
This kind of information could raise the assertion of control risk and
prevention risk being on higher side as the internal auditors were
appointed only recently for enhancing the internal controls and to advise
changes necessary for the effective functioning of the company.
Auditor has to prepare a questionnaire which is to be answered by the
internal audit staff that would provide reasonable estimate to the extent to
which the internal audit team was able to justify their suggestions to the
CEO and a realistic view on the workings and
Performance of the CEO can be understood, in addition check the minutes
of various meetings of various committees to check whether the
discussion about the internal auditors suggestions were made mainly
minutes of the audit committee meetings (Kangarluie and Aalizadeh
2017).
 The accountant of the company has to be replaced in case it is proved that
he is guilty of any misconduct based on any evidence which can be
obtained by reviewing his work and also by conducting substantive audit
procedures on the work done by the accountant.
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References
Alexander, F.K. 2016. “The Changing Face of Accountability.” The Journal of
Higher Education 71 (4): 411-431.
Bromwich, M, and R.W Scapens. 2016. “Management Accounting Research: 25
years on.” Management Accounting Research 31 (1): 1-9.
Fay, R, and E.M Negangard. 2017. “Manual journal entry testing : Data analytics
and the risk of fraud.” Journal of Accounting Education 38: 37-49.
Kangarluie, S, and A Aalizadeh. 2017. “'The expectation gap in auditing.”
Accounting 3 (1): 19-22.
Kew, J, and J Stredwick. 2017. Business Environment: Managing in a Strategic
Context. 2nd. London: Chartered Institute of Personnel and Development.
Lessambo, F.I. 2018. “Audit Risks: Identification and Procedures.” Auditing,
Assurance Services, and Forensics 3 (1): 183-202.
Raiborn, C, J.B Butler, and K Martin. 2016. “The internal audit function: A
prerequisite for Good Governance.” Journal of Corporate Accounting and
Finance 28 (2): 10-21.
Sithole, S., P. Chandler, I. Abeysekera, and F Paas. 2017. “Benefits of guided self-
management of attention on learning accounting.” Journal of Educational
Psychology 109 (2): 220. http://psycnet.apa.org/buy/2016-21263-001.
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