QUESTION #2 (26 Mаrks | 30 Minutes) Yоu аre а Seniоr Auditоr at Apex Assurance LLP. You have been assigned to plan the audit for SunGrain Foods Ltd., a privately-owned, mid-sized company in Lethbridge, Alberta that manufactures and distributes organic grain-based food products. The company has experienced rapid growth over the last three years and has recently expanded into international markets. Apex has been auditing SunGrain for the last five years and to date has had a good relationship with the client, and no issues on past engagements. The following background information was obtained during the planning phase: 1. SunGrain's product line has expanded from 5 products to over 40 in two years. Many of the new products are untested in the market. 2. The company is in the process of implementing a new enterprise resource planning (ERP) system, with partial go-live scheduled during the fiscal year-end. 3. A significant portion of revenue (30%) now comes from new markets in South America and Southeast Asia, where the company has limited experience. 4. The CFO is new to the company and has limited experience with IFRS, although SunGrain is planning to go public later this year and reports under IFRS. 5. The internal audit function was recently disbanded due to cost-cutting. 6. There have been frequent changes in inventory valuation methods over the last three years. 7. Sales teams are offered bonuses based on revenue, not profit. 8. SunGrain’s Finance team has high turnover, especially in the Accounts Receivable and Payables departments. REQUIRED: 1. Explain why must auditors gain an understanding of their client at the start of every audit. Your answer should include 3-5 sentences or bullet points. (4 Marks) 2. Based on the scenario above, identify and explain four Inherent Risk factors that could impact the audit of SunGrain Foods Ltd. (8 Marks) 3. Identify and explain three Control Risk factors present in the scenario. (6 Marks) 4. Provide your overall assessment of Inherent Risk and Control Risk (High, Moderate or Low) for SunGrain Foods Ltd., with justification for each. (6 Marks) 5. Assuming that Detection Risk is Low and given your assessments of Inherent and Control Risk from Part 4, what would your overall Audit Risk Assessment be for this engagement? (2 Marks)
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