Auditing ACCT3000-You are an Audit Senior currently planning

Assignment 2 – Auditing ACCT3000 (Semester 1, 2017)
You are an Audit Senior currently planning the 30 June 2017 audit of Wild Forest Limited (WF),
an Australian-owned company that produces and exports woodchips to Vietnam. WF’s operations
are located in New South Wales. Timber is purchased from forests nearby, processed into
woodchips and immediately stockpiled for export at the company’s shipyards. WF contracts
timber cutters to deliver set tonnages of logs to its mill throughout the year. Woodchips are
transported to Vietnam on charter vessels, which make an average of one trip a month. You note
the following situations relating to WF:
(i) WF upgraded its accounts payable system to a fully integrated package that automatically
updates the general ledger when creditor entries are made. Some problems have been
experienced with the creditors ledger, which is split into US dollar ($US) and Australian
dollar ($AUD) amounts. 50% of the timber purchased must be paid for in $US by WF. In
some cases, $US amounts have been recorded as $AUD, resulting in inaccurate creditor
balances. Month-end rollovers have also proved problematic, with creditor balances being
incorrectly re-set to zero at the first of every month. This has required each creditor’s
history to be re-entered manually each month, a time-consuming process that is taking
accounting staff away from their normal duties. (ii) WF is planning to expand its operations to Melbourne, Perth and Sydney. It is applying for
a loan from the bank to get funding for the expansion. Before granting the loan, the bank
requires WF to provide them with the audited financial statement. The unaudited figures of
current year suggest revenue to have increased significantly by 30 percent from last year.
The Finance Director of WF, Mr. Bradley Stallone is keen to set up an internal audit
department. Currently the project appears to have stalled, as some of the senior executives
do not foresee the benefit of setting up such a department and are unwilling to commit any
additional funds or resources on this plan. The senior executives feel that the same funds
can be spent in expanding operations. (iii) During the year, WF’s Managing Director of the past 10 years retired and a new Managing
Director was appointed. The new Managing Director, Sheldon Cooper, has previously
worked as a Financial Controller in the fashion industry and is new to the forestry industry.
Soon after Sheldon was appointed as the Managing Director, WF introduced bonuses for its
sales staff to help achieve budgeted sales for the year. The bonuses are an increasing
percentage of the gross sales made, by each sales person, above certain monthly targets.
WF does not currently have a strong system of credit limit checks for its customers in
place.
Required
1. Prepare a memorandum to the Audit Manager, outlining your risk assessment relating to
Wild Forest Limited based on the above situations and your recommendations on the
audit approach to be used.
(8 Marks)
2. For each of the above situations relating to Wild Forest Limited, answer the following:
(a) Identify and discuss why the above situation represents a risk.
(b) By applying auditing knowledge, identify the main account or group of accounts
affected by this risk in the audit plan.
(c) Identify how the audit plan will be affected by the risks and recommend specific
procedures to address these risks.
(12 Marks)