AUDIT OF PRODUCTION, FINANCIAL AND REPUTATIONAL RISKS

AT ADVENTURELAND TOYS COMPANY

The board of directors of AdventureLand Toys, a medium sized soft toys manufacturing company based in Sydney, has decided to ask their internal audit committee to carry out a detailed audit of risks within the business and its supply chain.

Unpredicted/unforeseen risks have crystallised/emergedrecently that have cost the company a large amount of money. This business has always placed a high level of importance on monitoring the quality of its finished products. Most of the internal audit departments work has been focussed on ensuring that the quality control processes are carried out properly. Despite this, a batch of new toys called Bounce Back boomerangs, made of a new and very soft type of imported plastic, had to be taken off the market and buyers refunded because of a toxic substance that was discovered in the soft plastic. This new kind of plastic was not fully safety tested as part of the finished product check.

The raw material cost of the new plastic also increased dramatically due to an unforeseen 500% increase in shipping costs as a result of the Covid pandemic.

Both issues the faulty new product, and rising transport costs - were made worse by the rapid growth the business experienced when online sales of Bounce Back boomerangs reached unexpectedly high levels after it wasadopted as a symbol by the youth protest movementagainst recent Climate Change related extreme weather events including catastrophic bushfires followed by floodsin Australia

The head of the internal audit committee, HR Manager Osim Shrestha, is instructed by the Board and the CEO to supervise a new risk audit of the supply chain. Herequests permission to recruit extra staff to carry out thisextensive risk audit work. However, he thinks that the extra staff will only need to be appointed on temporarycontracts, because the detailed risk auditing of the supply chain should only need to be carried out once. Then after it is completed, it should only need to be updated annually to include any major changes to inputs and logistics.

Required:

YOU are a rising star accountant in AdventureLand Toys. HR Manager Osim Shrestha asks you to assist him bydrafting the comprehensive risk audit report that must be presented to the Board:

Q1: Apply the TARA and ALARP models to identify the key strategic and operational risk factors that should be included in the internal audit of the supply chain (4marks).

(Professional Skills: demonstrate your evaluation skills in assessing the key risk factors to be considered).

Transfer:

Avoid:

Reduce:

Accept:

Q 2: Explain to the Board that external auditors are requiredto independently review the results of internal risk audit of the supply chain (3 marks).

(Professional skills marks: demonstrate yourcommunication skills in persuading Mr Shrestha, the CEOand the Board to use external auditors.)

Q 3: Challenge HR Manager Shresthas assumption that this internal risk audit of the supply chain will only need to be reviewed annually. Demonstrate to him the reasons why it should be reviewed more frequently (3 marks).

(Professional skills marks: demonstrate scepticism skills in challenging HR Manager Shresthas views.)

more explaination please and main in question number 3