It is March 2015 and you are planning the financial report audit of your client Plush and Plastic Ltd for the year ended 30 June 2015. Plush and Plastic manufacture speciality toys and sell them directly to a range of small and medium sized retailers. You have arranged a meeting with Ted Counter, Plush and Plastic's CFO, to establish any audit risks so that you can complete your audit plan. The following information is provided by Ted in that meeting.

• During the year Plush and Plastic made a significant investment in a new online ordering system so its customers could log on and place orders directly. The intention was to reduce the amount of manual input required and to streamline the goods despatch and warehousing processes. The system has had many problems leading to incorrect goods being delivered and incorrect stock levels being recorded, which in turn has led to poor purchasing decisions being made. This has led to many customer complaints and returns of goods.

• As a result of the implementation of the new online system, the company is in the process of making a significant number of the sales order processing and warehouse staff redundant.

• In order to expand its capacity Plush and Plastic has carried out a major overhaul of some of its equipment and placed an order for new manufacturing equipment which will speed up production times for its most popular products. The new machinery is expected to be available sometime in the next financial year and will be financed through a bank loan although no agreement has yet been confirmed with its bank.

• Due to the economic downturn some of Plush and Plastics' customers are finding it difficult to pay their bills and are asking for longer payment terms. There is some evidence that order levels from customers are starting to fall. As a result of the strain this has put on cash flows, Plush and Plastic has taken to paying its suppliers after 60 days when this was previously 30 days.

Required

Identify the audit risks for the audit of Plush and Plastic for the year ended 30 June 2015.