Apply the MacDonald methodology to solve the case:

Yellow Mines

You are Jackie, a senior auditor at Stark and Associates and you are thrilled to have the opportunity to work on a new audit client with Heidi, one of the firm's top audit managers. The client is Yellow Mines Limited (YML). Heidi has asked you to work on the planning and you have to send her a draft of the planning memo (including a risk analysis, preliminary materiality assessment, audit approach and key risky areas) tonight.

You gathered the following information:

• The engagement was accepted, and an engagement letter was signed after the previous auditors were recently kicked out of the profession and can no longer conduct audits. Not surprisingly, when you tried to contact the previous auditors, you got no response.
• YML is a gold mining company that owns and operates several mines in Canada (Qubec and Ontario) and also owns mining properties in South America (Chile) and Indonesia.
• The companys shares are publicly traded in Toronto.
• Henri, the CEO, is known throughout the Canadian mining industry as a man of principle and integrity. He governs in accordance with three key guiding principles: entrepreneurial management, financial discipline, and corporate responsibility. YMLs efforts with respect to corporate responsibility have been recognized internationally, and the company was recently awarded three major awards for environmental protection. The recent annual reports include several pages of disclosure about its environmental management policies and its compliance with all environmental regulations.
• During your meeting with the internal auditor, you learnt that YML has a very sophisticated internal control system, a state-of-the art integrated reporting software, and that the internal audit department conducts extensive internal verifications of their internal controls procedures each year.
• There has been a significant change in the payroll process this year. On June 1, the company outsourced their payroll function to a company called Paystar Inc. Three employees in the payroll department were terminated due to this change in process. The launch of the new process was a bit difficult: a few non-material errors were found in the July payroll payments, but Paystar (in collaboration with the YML accounting teams) was prompt in adjusting the process, and since then, the weekly payroll payments are running smoothly. Paystar auditors have provided a type 2 CSAE 3416 Report attesting the high quality of the internal controls at Paystar.
• The CEO and the management team have stock options that will vest next year.
• Next year, YML plans to acquire their main competitor; a large U.S. gold company that has significant mining operations in Canada.
• New stories have appeared in the Press reporting that residents living near the mines in Canada and the other countries have organized protests after noting an increase in breathing problems.
• Historically, YML has always been extremely profitable. However, this year, there was a lengthy strike in the Qubec mining sites and it significantly affected the production, revenues and earnings during the second part of the year. Consequently, this years revenue and net income are much lower than usual.