This is a question about the planning stage of the audit and undertaking a risk assessment to determine an appropriate evidence mix.

You have been hired to audit a large national company that transports fuel throughout Australia. Profits have been strong for the past 10 years.

During the reporting period, the company began negotiations to take over two smaller companies in New Zealand and Malaysia. Negotiations to purchase the company in New Zealand began in late 2020 but have not progressed significantly in the last 6 months. In January 2021, the company had signed an agreement to purchase 100% of the equity of the company in Malaysia for $100 million. The deal was to be finalised before the end of the current reporting period. In March 2021, the Government in Malaysia locked down all international trade resulting in a freeze on any negotiations continuing with the company in Malaysia.

In March 2021, the company were involved in a major environmental incident involving the pollution of a river in New South Wales. The company accidently allowed a significant amount of fuel to enter the water system resulting in significant damage to local farmland and the ecosystem. The Environment Protection Authority (EPA) is currently investigating the nature and extent of pollution. It is expected that the EPA will complete its investigation in early July 2021. The EPA is likely to fine the company the maximum allowed $20 million and will also initiate legal proceedings against the company pending the outcome of the report. As a result of this incident, the company replaced the CEO and 2 members of the Board. The new CEO and Board members will take their posts on the 1 June 2021.

In April 2021, the company sold one of its major mining divisions for $50 Million to Australian Transport Limited, one of their competitors operating in Australia. The company also issued $20 Million debentures which will be fully redeemed in 2030. Preliminary assessment of the internal controls has indicated the internal controls are strong, in line with previous assessments of the internal controls. However, further investigations are being undertaken by the company in relation to a breakdown of operational controls resulting in the environmental incident in New South Wales.

Required:

Using the information provided in the case study, identify recommend an appropriate evidence mix for the audit of the entity. In your recommendation (answer), please make sure you use the audit risk model (the components of the audit risk model), to provide a brief justification for the evidence mix you have recommended.