You are the manager responsible for the audit of Bole Company, a chain of health and leisure clubs owned and managed by the Phil Addis family. The audit for the year ended 30 November 2019 is nearing completion and the draft financial statements recognize total assets of GH¢27 million and profit before tax of GH¢2.2 million. The audit senior has left the following file notes for your consideration during your review of the audit working papers: DC: ACD01-F004

1. Cash transfers During a review of the cash book, a receipt of GH¢350,000 was identified which was accompanied by the description ‘BD’. Bank statements showed that the following day a nearly identical amount was transferred into a bank account held in a foreign country. When I asked the financial controller about this, she requested that I speak to Mr. Addis, as he has sole responsibility for cash management. According to Mr. Addis, an old friend of his, Ababa Ethiop, has loaned the money to the company to fund further expansion and the money has been invested until it is needed. Documentary evidence concerning the transaction has been requested from Mr. Addis but has not yet been received.

2. Legal dispute at the year end, Bole Company reversed a provision relating to an ongoing legal dispute with an ex-employee who was claiming GH¢150,000 for unfair dismissal. This amount was provided in full in the financial statements for the year ended 30 November 2018 but has now been reversed because Mr. Addis believes it is now likely that Bole Company will successfully defend the legal case. Mr. Addis has not been available to discuss this matter and no additional documentary evidence has been made available since the end of the previous year’s audit. The audit report was unmodified in the previous year.

Required:

Evaluate the implications for the completion of the audit, recommending any further actions which should be taken by your audit firm.