Report On Audit Planning Of Murray River Organics - Assignment Solution

TO: Audit Partner

FROM: MRG audit engagement team

DATE: July 15, 2018

SUBJECT: Audit Planning Memorandum of MRO

Dear Sir,

The purpose of this report is to highlight the most important / key audit areas in performing the audit of Murray River Organics (hereinafter “MRO”) for the financial year ended June 30, 2018, as a result of obtained understanding of MRO, its operations, environment in which it operates and the surrounding business risks.

1. Operational characteristics

1.1 MRO is a manufacturer, marketer and seller of organic and natural food products. The company’s vision is to standout as a brand that empowers healthy, organic and sustainable food choices among the consumers. It supplies its products to domestic and retail (supermarkets and small retailers), wholesale and industrial (bulk products to distributors), and other customers who use dried vine fruits in their end product (MRO, 2017). MRO operates in only one industry and owns a production and distribution  facility in Dandenong South, Victoria from where it distributes almost 89% products to domestic consumers in Australia and remainder 11% is exported to channels around Asia, US and Europe (Bloomberg, 2019).

1.2 The company has been incurring net loss since last few years although its revenue has been steeply rising since 2015 to 2018. This is shown in the following graph:

(Source: Simply Wall Street, 2019)

1.3 In the recent years the company has followed inorganic growth model by acquiring other organic food businesses in Australia viz. Food Source International and Australian Organic Holdings (both in FY 2017). MRO’s 30% equity is owned by institutional investors. Currently the company is facing problems in realizing its full potential as the net loss position continues with some analysts predicting the break-even position not to be possible before 2022, with an assumption of 77% revenue growth (Simply Wall St, 2019).

2. Identified Business Risks

Following business risks are identified:

2.1 Significant dependence on a single customer

Currently the group’s combined revenue stands at USD 68.539 million, out of which USD 34.231 million pertains to a single customer. This results in a huge dependency whereby 50% of the revenue is generated form single customer (as stated in Note 27 Segment Information). In case this customer decides to change supplier, the company would take a huge downfall in its revenue.