Wonder Bakeries Limited (WBL) had sales of $32,000,000 in 2017, versus $24,000,000 in 2016. They are listed on the Major Stock Exchange, but the Wonder family still controls 25% of the voting shares.Prior to 2017, WBL was audited by Campbell, Clark LLP.

At the end of 2016, WBL expanded their operations into Western Canada, at which point Campbell, Clark indicated that they would be unable to continue the audit since they are a local firm.

You are an Audit Manager with Rowlands, Marcellin, and Khan, (RMK). WBL has approached RMK about performing the audit for 2017 and you have had an initial meeting with the Controller for WBL, Walter Nelson and made the following notes.

The baking factory in Vancouver is a new build. It is currently 20% complete and is expected to go into operation in early 2019. Construction is being financed through a bank loan from the Bank of New Glasgow, with funds advanced in accordance with project milestones being met.

During 2016, WBL was in negotiations to take over the operations of two existing plants located in Calgary and Edmonton, Alberta. Purchasing these plants cost $16,000,000 and the fair market value of the assets acquired was $12,000,000. By buying existing plants, in 2017, WBL was able to quickly generate sales of $5,000,000 with a gross margin of 20%.

Currently WBL is in negotiations to acquire a bakery in Winnipeg but requires the audited statements in order to get more bank loans.

RMK uses an audit risk of 1% for its clients. You have assessed inherent risk at 50% and control risk at 30%.

Required

a)(4 marks) What type of engagement would you recommend and why?

b)(2 marks) Calculate planning materiality.

c)(2 marks) What level of confidence (detection work) will your testing need to achieve based on your assessment of engagement risks this year?

d)(4 marks) Identify two inherent risks in this years audit. Be precise.

e)(4 marks) With reference to one of the key assertions you identified, what audit technique would you apply to gather evidence about the assertion?