It is March 2020 and the World Health Organisation declared a global pandemic. Overnight global listed companies took a big hit, some losing market capitalisation value on average of 30%.

You are the audit manager and will provide reasonable assurance for Planes Catering Ltd at financial year end. They are a Perth based company that sells commercial grade restaurant catering equipment. Up until now the majority of sales have been in cash but after Covid the CEO is looking to upgrade their EFT systems especially since he is planning an expansion to Melbourne and Sydney at the end of the financial year, 31 December 2020.

In order to fund the expansion and given interest rates dropped so much due to Covid, the CEO is applying for a loan. Before granting the loan, the bank requires audited financial statements. The unaudited figures of the current year suggest revenue has increased significantly by 30% from last year while gross profit increased by 5%. Your firm has been auditing Planes Catering for the last two years, in fact the acquisition of the client is due to you as you went to uni with the CEO and even managed to negotiate an audit fee 20% higher than what the client paid their previous auditor.

The audit partner previously questioned the integrity of the CFO who has a reputation for adopting aggressive accounting practices but during discussions with the CEO you declared to the partner everything is ok and above board.

3) Discuss the main audit risks and provide reasons as to why you believe they are risks.