Good Tiding Limited is a company with corporate registrations in both Canada and US. The President of the company is based in Canada and from time to time, travels to the US to oversee the office there and order for the purchase of some of the articles for sale. To ensure steady supply of the products, some of the products are also ordered from China. The purchases from US and China are charged to the Canada entity in USD.

In September 2020 the President embarked on a trip to France for two weeks where he spent part of his annual holiday. During this period, he hosted a couple of friends with the costs that were paid for by the company as the costs were above his approved annual holiday expenses. He subsequently traveled to US and was quarantined for two weeks due to COVID-19 before moving to the usual business lodge that he uses. Despite using that period to oversee the US company, all the costs incurred were borne by the Canadian company.

The products bought in US and sent to Canada were charged at cost plus 25%, while the Canadian company was responsible for insurance and freight. The goods purchased from China were forwarded to Canada at cost of landing in Canada plus 30%. The China-made products are less expensive and therefore give better profits despite the cost of the long-distance freight.

M_o_n_e_y_ _w_a_s_ _t_r_a_n_s_f_e_r_r_e_d_ _t_o_ _t_h_e_ _P_r_e_s_i_d_e_n_t_s_ _p_e_r_s_o_n_a_l_ _a_c_c_o_u_n_t_ _f_o_r_ _t_h_e_ _c_o_m_p_a_n_y_s_ _p_u_r_c_h_a_s_e_s_ _i_n_ _U_S_,_ _t_h_e_ _p_u_r_c_h_a_s_e_s_ _m_a_d_e_ _i_n_ _C_h_i_n_a_ _a_n_d_ _t_h_e_ _P_r_e_s_i_d_e_n_t_s_ _p_e_r_s_o_n_a_l_ _e_x_p_e_n_s_e_s_._ _A_n_ _a_g_e_n_t_ _i_n_ _C_h_i_n_a_ _b_o_u_g_h_t_ _t_h_e_ _g_o_o_d_s_ _which were paid for by the President.

The US company staff handled the documentation of all the transactions of the President while there and transferred them to Canada subject to the approval of the President.

S_e_p_a_r_a_t_e_ _r_e_c_o_r_d_s_ _w_e_r_e_ _n_o_t_ _m_a_i_n_t_a_i_n_e_d_ _f_o_r_ _t_h_e_ _P_r_e_s_i_d_e_n_t_s_ _expenses in the US. However, his comparison of the results of the two units showed that for the immediate past financial year, the Canadian company had performed sub-optimally and way below the targeted profit in relation to the US company. The President is very unhappy about this as he expects that his personal visit to US would reduce the purchasing and associated costs. It is usual for the President to account for the cost of purchases based on his personal expenses attributable to each purchase together with the actual cost of purchases. The US component is elated about this costing method which favors it and would wish that this arrangement continues. The two units prepare separate financial statements which are audited by separate

accounting firms before the two financial statements are consolidated in Canada for t_h_e_ _P_r_e_s_i_d_e_n_t_s_ _evaluation.

Required:

As the audit senior, write a report to the board of directors evaluating, with appropriate justifications, from the scenario above, at least seven areas of risk which the auditor needs to consider and provide controls to mitigate the risk.