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BEGA CHEESE LIMITED
AUDIT PLANNING MEMORANDUM
    Prepared by:
Reviewed by:
Date
    1.
    TERMS OF ENGAGEMENT (2 marks)
1. Applicable AASB are to be applied to the financial statement.
2. Management has the responsibility for the following:
- Preparation of the financial statement.
- Allow auditor to carry out auditing without any restriction.
- Furnish any information as demanded by the auditor to complete auditing.
3. Auditor accepts the responsibility to find out if the financial statement is free of any material misstatement after going through process of audit and assurance.
4. All the applicable laws will be complied with.
    
    BACKGROUND INFORMATION
    2.1 Business Risk Factors (Identify key factors and briefly outline why they impact on the business risk of Bega Cheese Limited at the financial report level under sections 2.1.1 & 2.1.2)
2.1.1 Factors that increase risk (3 marks)
(i) Inventory increases the risk since it is difficult to keep check on the inventory. It is difficult for auditor to constantly review the inventory and to understand the quantity in the inventory. But inventory can impact profit.
(ii) Risk lies in internal control since the company do not properly delegate the duties and responsibilities among the individual staff which can lead to frauds in future. A strict internal control need to be implemented in the organization.
(iii) Risk management process of the company is not very effective and has pose threat in the past. The company should implement a proper outline of risk management policy. There is also issue regarding the management of the risk process adopted.
2.1.2 Factors that decrease risk (3 marks)
(i) The distribution network is strongly organized and managed. So, the auditor does not need to much attention there and it will also reduce the audit risk since delegated responsibilities in distribution will automatically reduce existence of frauds.
(ii) All the records of the past mergers and acquisition are kept by the company and information can be get on any transaction in the past. So, if the auditor has any doubt about any item in the financial statement, those can be easily verified.
(iii) The workforce of the company is highly trained and efficient, so this reduces the audit risk since there are limited chances of errors and it can be expected that if the auditor enquires about anything, proper answer will be received.
    
    2.2 Internal Control Environment (6 marks)
Discuss the control environment, including company level controls.
The company has a team for internal control and also has a separate team for internal control auditors. Audit & Risk Committee has been bestowed the responsibility to look after the process of internal control. The directors also decide regarding the internal controls which are to be implemented to make the financial statement free from any material misstatement.
The company has implemented several internal control policies which are as follows:
(i) Check if the documents are signed by the authorized signatory. The company has three authorized signatory and only their sign is to be present in every official documents.
(ii) Bank reconciliation is done at the regular interval. Trial balances are checked at regular intervals.
(iii) Purchase invoices are checked at regular intervals and inventory is checked as per that. Physical verification of inventory is done.
(iv) Financial records, expenses reimbursements are checked at regular intervals.
(v) Time sheets are checked and salary payments are checked at regular intervals.
(vi) A formal expenditure policy is maintained by the company.
(vii) The duties are kept separate so that there is less chance of fraud in the company.
(viii) Very limited people have access to the accounting system of the company so that vital information does not come to the hands of everyone and there is less chance of manipulation in the accounts. Accounting system is also checked at regular intervals.
    2.3 Risk of Fraud for Bega Cheese Limited
2.3.1 Discuss whether you consider there to be any accounts susceptible to asset misappropriation (2 marks)
There are chances of existence of fraud in inventory since there is continuous turnover of inventory and moreover the company has inventory of perishable goods, which needs to be sold within stipulated time period. Moreover, it is also difficult to verify the left over inventory every time. So, there are high chances of misappropriation in inventory.
Cash is mostly exposed to misappropriation and so even in this...