Astra and Company LLP (Astra) is a reputable accountancy firm with a growing auditing practice based in London. You have recently been promoted to Junior Partner and you manage a small portfolio of audit clients alongside one of Astras statutory audit partners.

Astra is the external auditor of Coffee 2 Go Limited (C2G), an established coffee roasting and wholesaling company based in London. C2G was established ten years ago and has quickly grown to match the exponential increase in the number of independent coffee shops in London and Greater London.

C2G buys its green coffee beans from international coffee bean traders and roasts the beans according to the needs of its customers. C2G supplies roasted coffee beans to small one-unit coffee shops and medium/large-sized chains of coffee shops.

C2G is preparing for an Initial Public Offering (IPO).

The impact of the recent pandemic has caused several of C2Gs customers to go out of business and as a result, C2G has written off the related trade debtors. The ages of many of C2Gs current trade debtor balances are well over its normal 30-day payment terms.

Astra was appointed auditor of C2G at its most recent Annual General Meeting, so this is the first time that your firm has audited the financial statements. The original auditor had resigned due to a disagreement over the provisions for bad and doubtful debts and inventory obsolescence.

C2Gs most recent financial year ended on 31 December 2021 and your firm is about to begin the final audit. The interim audit was completed in a three-week visit in September 2021 during which the tests of controls were carried out with no errors.

C2Gs physical inventory check was held on 31 December 2021. Astra staff attended this inventory check, and their key findings were as follows: (see image attached)

C2G has provided you with the draft financial statements for the year ended 31 December 2021, together with the audited financial statements for the previous year. An extract from the balance sheet (statement of financial position) is set out below: (see image attached)

Required

(a) From the information given, identify and briefly explain areas of particular audit risk in C2Gs 2021 financial statements. (12 marks)

C2G's physical inventory check was held on 31 December 2021. Astra staff attended this inventory check, and their key findings were as follows: 1. 2. We reviewed the company's written instructions for the inventory check and found these to be in order and in line with our expectations. All of the inventory was counted by the company's staff. We tested the count relating to 10% of the value of the inventory. We tested both ways - the counting from the ERP print out to the physical inventory and vice versa. There were no errors between the quantities in the MRP system and the physical store. We noted a significant number of sacks of green coffee beans that the manufacturing manager informed us were 'out of date'. 3. C2G has provided you with the draft financial statements for the year ended 31 December 2021, together with the audited financial statements for the previous year. An extract from the balance sheet (statement of financial position) is set out below. As at 31 December 2020 2021 Audited Draft Financial Financial Statements Statements Current Assets Cash at bank 'million 1.0 0.5 Trade debtors - gross 'million 12.0 15.0 Trade debtors provision Emillion -3.0 -2.0 Trade debtors - net 'million 9.0 13.0 Inventory - gross 'million 6.0 7.0 Inventory - provision 'million - 1.0 0.0 Inventory - net E'million 5.0 7.0 Total 'million 15.0 20.5 C2G's physical inventory check was held on 31 December 2021. Astra staff attended this inventory check, and their key findings were as follows: 1. 2. We reviewed the company's written instructions for the inventory check and found these to be in order and in line with our expectations. All of the inventory was counted by the company's staff. We tested the count relating to 10% of the value of the inventory. We tested both ways - the counting from the ERP print out to the physical inventory and vice versa. There were no errors between the quantities in the MRP system and the physical store. We noted a significant number of sacks of green coffee beans that the manufacturing manager informed us were 'out of date'. 3. C2G has provided you with the draft financial statements for the year ended 31 December 2021, together with the audited financial statements for the previous year. An extract from the balance sheet (statement of financial position) is set out below. As at 31 December 2020 2021 Audited Draft Financial Financial Statements Statements Current Assets Cash at bank 'million 1.0 0.5 Trade debtors - gross 'million 12.0 15.0 Trade debtors provision Emillion -3.0 -2.0 Trade debtors - net 'million 9.0 13.0 Inventory - gross 'million 6.0 7.0 Inventory - provision 'million - 1.0 0.0 Inventory - net E'million 5.0 7.0 Total 'million 15.0 20.5