As a senior auditor with CLEVERY FIRM, you are planning the audit of NEW WAVE CO LTD for the fiscal year that ends on March 31, 2021. The business makes portable music players, and your audit manager and the finance director have already planned a meeting. The expected $68.6 million in revenue and $4.2 million in profit before taxes. Audit manager has given you the meeting notes shown below:

Key notes

The lower of cost and net realisable value is used to value inventory. The price of raw materials purchased plus conversion costs, such as labor, production, and general overheads, are combined to form the cost. Three different warehouses are used to store inventory. On April 2, 3, and 4, the business plans to complete thorough inventory counts at the warehouses. Any modifications that are required to reflect post-year-end inventory movements will be made. The counts will be attended by the internal audit team.

In order to obtain a competitive edge in their sector, NEW WAVE CO LTD spent $1.1 million on a patent during the year that grants the business the exclusive right for three years to customize its portable music players. The $1 million has been deducted from the current year's profit or loss statement. NEW WAVE CO LTD issued shares at a premium in order to obtain $1.2m to pay for this acquisition.

In November 2020, it was discovered that four employees in the sales ledger department had conspired to commit a sizable teeming and lading scam. To make up for the money they had taken from wholesale customer receipts, they offset later customer receipts against the earlier receivables. All of these employees were fired after being reported to the police. Due to the open positions in the sales ledger department, NEW WAVE CO LTD chose to outsource the processing of its sales ledgers to an outside service company. This service provider manages every aspect of the sales ledger cycle, such as sales invoicing and tracking down outstanding receivables balances, and produces monthly reports to NEW WAVE CO LTD that include specifics on sales and receivable amounts. NEW WAVE CO LTD ran its own sales ledger until 31 January 2021, at which point the records were transferred to the service organisation.

The financial accountant for NEW WAVE CO LTD was fired in December 2020. He has nine years of service with the corporation, and he has vowed to suit for wrongful termination. The duties of the financial accountant have been suitably delegated to other employees of the finance department as a result of this dismissal and up until his replacement starts working in April. However, neither buy ledger control account reconciliations nor supplier statement reconciliations have been carried out for this time period.

In January 2020, a receivable balance of $0.9m was written off by NEW WAVE CO LTD as it was deemed irrecoverable as the customer had declared itself bankrupt. In February 2021, the liquidators handling the bankruptcy of the company publicly announced that it was likely that most of its creditors would receive a pay-out of 40% of the balance owed. As a result, NEW WAVE CO LTD has included a current asset of $360,000 within the statement of financial position and other income in the statement of profit or loss.

Your audit team is required to:

a) Based on results of analytical procedure and provided information, identify at least 8 audit risks.

b) For each identified risk, suggest the possible impacts on audit plan.

(Example: how the risks impact Sampling, what are the possible further actions of auditor, or any modification for TOCs, STOTs and STDB)