The Auditing Case Study

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Memo

To : Watson & Partners

Re : Audit of Moss Green Ltd.

Company structure

Moss Green Ltd. is a wine grower and producer of medium to high quality wines, located in Western Australia’s Margaret River region. Tickit Associates was Moss Green’s previous auditing company and we were engaged immediately after it listed on the Australian Stock Exchange to take over as auditors. The company is successful in exporting internationally, especially in the United Kingdom supermarket chain, Safebury. Mr.Tom Green is the founder and Managing Director of Moss Green Ltd. and Ms.Wendy Chong is the company’s financial director. There are two concerns involving Mr.Green’s lack of interest in financial matters and Ms.Chong’s financial performance.

Mr.Tom Green (Managing Director)

Under the requirement of AUST210.11.1 of APES 110 code of Ethics for Professional Accounts, we contacted Tickit Associates, to gain information about any significant issues which may impact on Moss Green Ltd. operations. Tickit Associates reported two issues : one with Mr.Green and one with Ms.Chong. They could not get Mr.Green to take an interest in the financial side of the business and, in their view, he was not financially literate. Thus, we may conclude that Mr.Green lacks financial understanding, and/or that he is not fulfilling his financial obligations which are required under the Corporations Act 2001, the Director’s Declaration.

Ms.Wendy Chong (Financial Director)

Tickit Associates reported that they had had a number of disputes over accounting practices with Ms.Chong, particularly in relation to the requirements under AASB 141 Agriculture and AASB 137 Provisions, Contingent Liabilities and Contingent Assets. In addition, we found that Ms.Chong had a conflict of interest, especially about her salary base and bonus scheme, which related to increased company profitability. These arrangements may be a motivation for her to overstate the financial health of the company....
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