Instructions in file

Audit Report of Bega Cheese Ltd
Contents
Introduction: About Bega Cheese Ltd    3
Objective of this report    3
Steps performed to identify the major risks faced by Bega Cheese Ltd    3
Information gathered about the company and nature of its operating environment    3
Evaluation of internal controls in general    3
Internal controls over key items/assets    4
Internal controls in relation to inventory    4
Valuation of Goodwill and intangible assets    4
Audit plan and further audit procedures    4
Testing of Control Environment    5
Goodwill and other intangible assets    5
Inventory    5
Other Analytical procedures carried out in relation to the material items and accounts    6
Business risks affecting the company    6
Subsequent Events    6
Adherence to Accounting Standards    7
Financial Reporting risks arising from non compliance of Accounting standards    7
Opinion on Financial statements    8
References    9
Introduction: About Bega Cheese Ltd
Bega Cheese Limited is a company registered on the Australian Stock Exchange under the code BGA (Bega Cheese Limited n.d.). This company is involved in production of dairy food products. Bega Cheese Limited is famous for the different variety of cheese products manufacture by it which includes – stringers, slice, fingers, natural cheese, reduced fat cheddar cheese etc. The company is involved in production and distribution of food products under the brand name Bega for retail sector as well as the food service industry sector. The company has nearly 2000 employees and its headquarters are located in Bega in New South Wales (Bega Cheese Limited n.d.).
Objective of this report
This report is intended to perform a critical analysis of the internal and external environment of the company Bega Cheese Limited, its operating activities, and the main strategies adopted by the company. The report will also perform an analysis of the material items reported on the statement of financial position of the company as well as the significant items that form part of its income statement. The report purports to analyze and evaluate various audit risks faced by the company and how those risks can be mitigated by the company.
Steps performed to identify the major risks faced by Bega Cheese Ltd
Information gathered about the company and nature of its operating environment
The Australian Auditing Standard 315 which is “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment” provides that an auditor should monitor, evaluate and measure the risk of any major misstatement that affects the company and its environment. This is the first step in the audit of any entity and this step provides the foundation for further audit procedures that are to be performed by the auditor.
In line with the requirements of this ASA 315, various in key personnel of the company- the CEO, CFO and Executive Chairman. The purpose of these discussions was to know about the aims, goals, vision and strategic direction of the company.
Evaluation of internal controls in general
It’s very important to assess the efficiency of internal controls that have been set-up at the company as existence of weak internal controls may require the auditor to expand their audit procedures. Weak internal controls provide an indication that there are greater chances of material misstatement being present in the financial statements; hence auditor is required to gather greater substantive substance in case when internal controls are weak. We conducted certain meetings with the internal audit team of Bega Cheese Limited in order to understand how the internal controls were functioning at the company. We particularly focused on internal controls related to Cash, Inventory, Plant and Machinery as these are the most important assets held by the company. We also paid special emphasis on internal controls over inventory counting and evaluation since the volume of inventory is significant and its total value constitutes a major amount.
Internal controls over key items/assets
Internal controls in relation to inventory
As the size of inventory held by the company is quite huge, it raises a lot of concerns regarding physical protection of the inventory as otherwise it could lead to instances of theft, pilferage, spoilage, damage etc. We examined the process followed by the company for delivery and storage of inventory and we asked about various access restrictions that had been placed over its delivery and storage. We carried out various checks to assess that whether the access restrictions were working properly and effectively or not. We evaluated the possibility of unauthorized access being gained into the storage areas in order to form a conclusion that all the internal controls intended towards physical protection of inventory are strong and effective.
    It was also considered important to examine the effectiveness of Inventory management System that was being used by the company as the correct valuation of inventory depends on the effectiveness of the inventory management system. All the processes related to inventory were observed in order to assess if there was adequate segregation of duties in all the processes. In this audit, inventory was considered as a significant item owing to its volume and value, and it was concluded that possibility of risk of material misstatement was quite high in relation to value of inventory held by the company.
Valuation of Goodwill and intangible assets
The value of goodwill and other intangible assets held by the company was another area where we ascertained the possibility of a material misstatement. We examined the method that was used by the...