You are an Audit Senior currently planning the 30 June 2017
audit of Wild Forest Limited (WF), an Australian-owned company that
produces and exports woodchips to Vietnam. WF’s operations are
located in New South Wales. Timber is purchased from forests
nearby, processed into woodchips and immediately stockpiled for
export at the company’s shipyards. WF contracts timber cutters to
deliver set tonnages of logs to its mill throughout the year.
Woodchips are transported to Vietnam on charter vessels, which make
an average of one trip a month. You note the following situations
relating to WF: (i) WF upgraded its accounts payable system to a
fully integrated package that automatically updates the general
ledger when creditor entries are made. Some problems have been
experienced with the creditors ledger, which is split into US
dollar ($US) and Australian dollar ($AUD) amounts. 50% of the
timber purchased must be paid for in $US by WF. In some cases, $US
amounts have been recorded as $AUD, resulting in inaccurate
creditor balances. Month-end rollovers have also proved
problematic, with creditor balances being incorrectly re-set to
zero at the first of every month. This has required each creditor’s
history to be re-entered manually each month, a time-consuming
process that is taking accounting staff away from their normal
duties. (ii) WF is planning to expand its operations to Melbourne,
Perth and Sydney. It is applying for a loan from the bank to get
funding for the expansion. Before granting the loan, the bank
requires WF to provide them with the audited financial statement.
The unaudited figures of current year suggest revenue to have
increased significantly by 30 percent from last year. The Finance
Director of WF, Mr. Bradley Stallone is keen to set up an internal
audit department. Currently the project appears to have stalled, as
some of the senior executives do not foresee the benefit of setting
up such a department and are unwilling to commit any additional
funds or resources on this plan. The senior executives feel that
the same funds can be spent in expanding operations. (iii) During
the year, WF’s Managing Director of the past 10 years retired and a
new Managing Director was appointed. The new Managing Director,
Sheldon Cooper, has previously worked as a Financial Controller in
the fashion industry and is new to the forestry industry. Soon
after Sheldon was appointed as the Managing Director, WF introduced
bonuses for its sales staff to help achieve budgeted sales for the
year. The bonuses are an increasing percentage of the gross sales
made, by each sales person, above certain monthly targets. WF does
not currently have a strong system of credit limit checks for its
customers in place. Required 1. Prepare a memorandum to the Audit
Manager, outlining your risk assessment relating to Wild Forest
Limited based on the above situations and your recommendations on
the audit approach to be used. (8 Marks) 2. For each of the above
situations relating to Wild Forest Limited, answer the following:
(a) Identify and discuss why the above situation represents a risk.
(b) By applying auditing knowledge, identify the main account or
group of accounts affected by this risk in the audit plan. (c)
Identify how the audit plan will be affected by the risks and
recommend specific procedures to address these risks. (12

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