You are an atidit manager at DWM \& Co., responsible for the audit of BMM, manufacturers of old-time fizry drinks such as Pine and Red Jucee's, along with Orange Fruties. You attended the planning meeting with the audit engagement partner and CFO of BiM. The minutes are pionded betou and you are reviewing them in order to prepare the audit strategy document. BIM has a December 31 year-end. Minutes of Planning Meeting for BIM BIM's trading results have increased from the previous year and remain strong. The compary has made significant investments in the local factory which resulted in upgrades of $5m. As production increased, BiM has expanded the number of warehouses that it utilizes to store its inventory to 5 warehouties across the island and has expanded distribution to Trinidad where 2 distribution warehouses are located. A new accounting system was implemented during the year, This new general ledger system was introduced at the beginning of the year as the old system was suspended. BIM has also incurred an expenditure of $4.5m on developing a new brand of low-sugar fizzy drink. This process began in 200 and is close to launching their product into the marketplace. A new credit controller has also been employed to chase-up outstanding receivable accounts. However, the CFo does not believe that it is necessary to continue to maintain an allowance for receivables and has released the opening allowance balance of $1.5m. In April, an error was made in the mixing of a batch of raw materials within the production process. This resulted in a large batch of drinks that tasted different. A small number of these products were sold, however, customer complaints about the lavors were such that the items had to be pulled from the shelves. No further sales of these items have been made and here has been no adjustment to the valuation of the damaged inventory which is currently being heid at a cost of $1m at he year-end. investments in the local factory which resulted in upgrades of $5m, As production increased, BiM has expanded the number of warehouses that it utilizes to store its irwentory to 5 warehouses across the island and has expanded distribution to Trinidad where 2 distribution warehouses are located. A new accounting system was implemented during the year. This new general ledger system was introduced at the beginning of the year as the old system was suspended. BIM has also incurred an expenditure of $4.5m on developing a new brand of low-sugar fizzy drink. This process began in 200 and is close to launching their product into the marketplace. A new credit controller has also been employed to chase-up outstanding receivable accounts. However, the CFO does not believe that it is necessary to continue to maintain an allowance for receivables and has released the opening allowance balance of $1.5m. In April, an error was made in the mixing of a batch of raw materials within the production process. This resulted in a large batch of drinks that tasted different. A small number of these products were sold, however, customer complaints about the flavors were such that the items had to be pulled from the shelves. No further sales of these items have been made and there has been no adjustment to the valuation of the damaged inventory which is currently being heid at a cost of $1m at the year-end. Required Using the minutes provided: a. identify four audit risks briefly explaining why it is a risk to the audit (A marks) b. briefly explain what the auditor should consider when planning the audit strategy to ensure the audit risks identifled are reduced. ( 4 marks - 1 mark for each audit risk identified)
