You are a junior auditor at Mallett&Stevens Audit and have assigned to the audit team for one of your firm's largest audit client: COOL SODA Inc (CSI). CSI is a large public company. Your firm has audited CSI for many years. You are working on the audit plan for the current year's audit and Roger, the audit manager has asked you to prepare and send him a draft of the planning memo (risk analysis, audit approach, preliminary materiality discussion and key risky areas) for the December 31, 2022 year-end audit. Based on your review of previous years' audit working papers, and meetings with management, you have learnt the following:

• CSI is a very large non-alcoholic beverage producer. The company operates in North America, Mexico, Brazil, the U.K and other European countries. CSI provides retailers with soft drinks, bottled water and juice drinks. Approximately 80% of its products are sold to retailers for sale under the retailer's brands, with the remainder sold under CSI's own brand names. In the past four years, CSI has expended its production and distribution capabilities, mainly through acquisitions of other businesses in Mexico and in Brazil. CSI plans to grow in the future mainly by continuing to develop new products such as tea-based beverages and smoothies, developing new distribution channels and obtaining new customers in new markets.
• During 2022, CSI rationalized its soft drinks line of business by focusing on its highest performing production facilities, resulting in several plant and warehouse closures in North America. These discontinued operations have generated a large profit of $8.1 million in 2022.
• The main raw material used in production is water. Other materials required are mainly plastic bottles, aluminum cans, packaging materials, sweeteners, fruit concentrates, and flavourings. The prices of the raw material fluctuate on world markets.
• During the prior audit, several material weaknesses were identified in the company's internal controls over financial reporting. One of the issues was related to credit notes. Last year, the lack of segregation of duties in the issuing of credit notes to customers for returned goods permitted a fraud to occur. An A/R clerk was discovered to be colluding with a warehouse manager to divert boxes of high value beverages from legitimate customer orders, and cover up the shortages by recording fictitious credit notes. The stolen beverages were sold by the warehouse employee to small local restaurants. Both employees have been fired and management has redesigned the internal controls over credit note authorization procedures. You are happy to note that the annual inventory count, scheduled on December 28, 2022, will be conducted under the supervision of the newly hired warehouse manager, who seems to be a very qualified person.
• For the year 2022, CSI reported its third-quarter performance, which was worse than financial analysts expected and much worse than the previous year's third-quarter performance. CSI's share price has fallen dramatically all year. The analysts also expressed concern that CSI is close to violating its debt covenants.
• There has been a significant change in the way CSI paid their vendors this year. On September 1, they implemented a new system of electronic payments that are directly linked to the general ledger, thereby eliminating the manual entries made from the cash disbursement journal. The launch of the software had a few problems. Currently, there is only one password that works. All employees including the manager have to use the same password to log into the system and multiple users can sign in using this password at the same time.