Red and Green Ltd is an online retailer of a broad range of art and craft...

Red and Green Ltd is an online retailer of a broad range of art and craft products. You are an audit senior at the firm Rose McKenzie & Co and are planning the financial report audit for the year ended 30 June 2018. Red and Green is a new client to your firm and this is the first year end since you were appointed. The following information was obtained from a meeting with the CEO, Alex Wool.

The company has managed to ride a wave of renewed interest by younger people in arts and crafts and the revenue for 2018 is approximately $3.2 million. This continues a trend that has seen revenue increase by between 20% and 30% consistently for the six years since the company was started by Alex and her tennis partner Sandra Cloth who is the COO. Profits in 2018 are $0.2 million and have not increased significantly in four years despite the increased turnover. In 2019 there are plans to broaden the range of products sold to include bedding, curtains and household furnishings.

Rapid expansion has put pressure on the company’s various systems, not least of which is the online sales order system. Red and Green do not have their own in-house IT function relying on Alex’s sister Tabatha who is responsible for accounting, IT, HR, payroll and general office management.

You are aware that in previous years errors had been detected at the audit stage, partly due to IT system errors and partly due to Tabatha’s inexperience as an accountant. Alex and Tabatha are confident that any errors in the financial report will be immaterial and not worth investigating given how busy they are with the growing business.

As part of the growth of the business the company is looking to raise additional bank borrowings to fund more warehouse space and invest in improvements to the IT systems. Alex has indicated that she needs the audit report signed before 18 September which is when she will be meeting the bank to discuss the details of the loan.

Required: In the following table identify the issues that give rise to risks for the financial report audit you are about to commence and explain why you think it is an issue.

Issue	Explanation

Solutions

Expert Solution

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ekkarill92 answered 1 year ago

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