You are the partner in charge of the audit of Drugs4U Ltd, a company which prepares, manufactures and sells to the a trade market a wide range of drugs which promote healthy living. The financial year end is 31st December and you are now reviewing the notes of the planning meeting held between the Finance Director, your audit manager and yourself in November. The company has had a successful year so far with turnover already exceeding HK$500M.
A new accounting package has been launched by the company. It was developed by the ex IT director who left subsequent an argument with the finance director over the lack of testing of the new software - it was not run in parallel at all because of time and cost. It has been running for under a month and the finance director has not recruited a new IT director because he considers that they are not required within the company. He has better things to do.
New shares have been issued to fund a new drug known as Argaiv which it is hoped will revolutionise exercise routines worldwide. These totalled HK$10M at nominal / face value and the company received HK$20M from this. The development costs for Argaiv and other products exceed HK$50M and the finance director proposes to capitalise this amount. A HK$75M bank loan has also been taken out - with the security on the loan being the land and buildings which the company owns outright at Sizewell in the United Kingdom. Therefore the land has been suspected of being contaminated with a radioactive metal - the source of which is as yet unknown.
Required:
To identify principal audit risk and corresponding audit procedures