Moss Green Ltd is a wine grower and producer of medium- to high-quality wines located in Western Australias Margaret River region. The company has recently listed on the Australian Securities Exchange. After listing, it changed auditors from Tickit Associates to your firm, Watson and Partners. You are an audit supervisor in Watson and Partners and you are planning the audit for 31 December 2017.

The managing director of Moss Green Ltd is Tom Green. He is the founder of the winery and has a very hands on management style. He is a trained winemaker and has always focused more on the wine making and marketing side of the business than the financial side, which he leaves to Wendy Chong, the financial director, in whom he has great faith. He pays her a good base salary and provides an attractive bonus scheme based on growth in net profitability.

The company has been very successful in selling its medium-quality wine to the United Kingdom. This is mainly due to a very large contract with one of the leading supermarket chains there, Safeburys. Part of the success has been due to the low value of the Australian dollar compared with the British pound. However, the company manages its foreign exchange risk through hedging, which is controlled by Wendy. Tom has also been very happy with Wendys performance in this area as she has made some healthy profits on her hedging contracts.

The wine production manager is Alfred Horndale. From discussions with Alfred, you become aware that the company has significant stock from the 2015 vintage in the Margaret River warehouse and in London (because it was rejected by Safeburys payment for this stock is currently in dispute).

As is the standard practice, you contacted Tickit Associates before you accepted the engagement at the beginning of the year to see whether there were any matters you should have been aware of before accepting the engagement. They told you that they had only two main concerns. First, they had problems getting Tom Green to have any interest in the financial side of the business, and it was their view that he was not financially literate. Second, there had been a number of disputes over accounting policy with Wendy Chong, particularly over getting her to implement AASB 141 Agriculture and AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

REQUIRED:

Prepare a memo to the audit partner outlining potential problem areas and their impact on the audit plan.