You are an audit senior in ABC & Co and are drafting the planning of the audit of Diamond Bhd. for the year ending 28 February 2020. Diamond Bhd. manufactures and sells face mask. In early 2020, the COVID-19 pandemic has emerged and was confirmed to have reached Malaysia in January 2020. The pandemic gives a huge impact on Diamond Bhd. due to a surge in demand for a face mask. The company runs at its full capacity to fulfill the demand from the public as well as hospitals which scrounge for protective gear for medical workers confronting the COVID-19 pandemic. In light of huge demand and limited supply, more companies are getting into the mask-making business. Effective 1st April 2020, the Malaysian government has fixed new ceiling prices for face masks to ensure sufficient supply during the COVID-19 pandemic. In addition, all export of face masks is not allowed as the ministry has banned the export of face masks. These new government regulations apply to Diamond Bhd. as well. Diamond Bhd. has an issue regarding its inventory control system, which has been highlighted in the previous year’s audit. In order to overcome the problem, a new inventory control system has been installed to restrict the access of unauthorized parties. In addition, the company has hired an expert to determine the value of its ending material inventories. As the company planned to be listed in the next 3 years, it has also planned to establish an internal audit department next year. In June 2019, Diamond Bhd. had a dispute with its Chief Financial Officer (CFO) and she immediately left the company. The company has asked its accountant to take over the role temporarily while waiting for a permanent replacement. The previous CFO has informed the company that she intends to sue for unfair dismissal. The company did not intend to provide for any provision or disclosures on this matter, as they are confident that the claim has no valid basis.

Required: 

a. Based on the situation above, identify and evaluate audit risks when you plan the audit of Diamond Bhd. 

b. Recommend appropriate audit responses relating to identified audit risks in (a) to ensure sufficient and appropriate audit evidence in the audit of Diamond Bhd.

c. Assess the impact of the COVID-19 pandemic on the audit of Diamond Bhd.

d. Suggest appropriate procedures to ensure adequate disclosure of ongoing concern assumption used in the preparation of a financial statement of Diamond Bhd. 

e. Analyze information required by the auditor to determine proper accounting treatment for the potential lawsuit by the Chief Financial Officer towards Diamond Bhd. Justify whether the auditor’s report of Diamond Bhd. need to be adjusted or not.