For each of the following items in Forest Ltd’s financial report, identify two (2) factors in the information provide d that increase audit risk: (i) Accounts payable; (ii) Commitments and contingencies; (iii) Inventory; and (iv) Receivables. (b) Discuss one (1) adjustment to be made to your a udit plan in response to the audit risk associated with each of the factors identified in part (a). (c) Outline six (6) factors that indicate Forest Lt d may encounter going concern problems over the next 12 months.You are currently planning the 30 June 20X7 audit of Forest Ltd, anAustralian-owned company that produces and exports woodchips toJapan. Forest’s operations are located in Eden, on the far south coast ofNSW. Timber is purchased from forests nearby, processed into woodchipsand immediately stockpiled for export at the company’s shipyards atTwofold Bay. Forest contracts timber cutters to deliver set tonnages oflogs to its mill throughout the year. Woodchips are transported to Japanon charter vessels, which make an average of one trip a month.At a recent planning meeting with Forest Ltd’s senior staff, you obtainedthe following overview of this year’s operations:A massive conveyor belt is used to transport the woodchips from the millto the stockpile. The manufacturer of this belt was recently taken over byan overseas competitor of Forest Ltd, Chipper Ltd, which processeswoodchips in several South-East Asian countries. Chipper Ltd hasindicated that it is willing to sell equipment to its competitors, but atdouble the price it will sell to its other customers. It is doubtful whetherany other companies in the world manufacture such specialised conveyorbelts.Based on current usage figures, it is expected that the existing conveyorbelt will last until December 20X8. Sufficient spare parts are on hand tocarry out routine maintenance work. However, should a replacement beltbe required, it would take at least six months to have a replacement madeand shipped to Australia, and a further four weeks to install and test it. Itis unlikely that the company could survive a six months interruption tonormal operations. Management are currently deciding whether theyshould order a replacement belt from Chipper Ltd despite the excessivecost, or continue to search for an alternate supplier.Timber is purchased in 50 hectare lots from plantations and state forests.In the past, 70% of timber was sourced from plantations, however thishas fallen to 50% in the current year. The corresponding increase intimber sourced from state forests has angered environmental groups.Protests have been held in several forests, which has slowed productionand frustrated the contractors, who are only paid once set tonnages oftimber are delivered to the mill. In addition, several shipments ofwoodchips have been delayed, angering the Japanese customers who arethreatening to deduct 20% from amounts owing as compensation for lostproduction time.Last month, a protester suffered a broken leg, allegedly because he washit by a timber truck. The protester was blocking the main access road toone of the state forests at the time of the accident. The protester is nowsuing Forest Ltd for damages, claiming the contractor was in fact anemployee of Forest Ltd at the time of the accident, and was acting onForest Ltd’s instructions. Forest Ltd is fighting the case and appears tohave a reasonable chance of winning; however, the adverse publicitybeing generated is making the state government nervous about sellingForest Ltd any more of its timber resources.One of Forest Ltd’s customers, Wood Ltd, is claiming that the latest batchof woodchips it received was contaminated with a microbe. This microbeaffects the physical structure of the chips, reducing the pressure the chipscan withstand when compressed. This has made the chips useless forheavy duty items such as desks and bookcases. Wood Ltd is refusing topay its account, which is already five months overdue. Forest Ltd haslaunched an investigation into the allegations, but as yet has not beenable to substantiate them.In January, Forest Ltd upgraded its accounts payable system to a fullyintegrated package that automatically updates the general ledger whencreditor entries are made. Some problems have been experienced withthe creditors ledger, which is split into $US and $AUD amounts. In somecases, $US amounts have been recorded as $AUD, resulting in inaccuratecreditor balances. Month-end rollovers have also proved problematic, withcreditor balances being incorrectly re-set to zero at the first of everymonth. This has required each creditor’s history to be re-entered manuallyeach month, a time-consuming process that is taking accounting staffaway from their normal duties.During the period, the Australian dollar has remained steady against theYen, although it fell by about 3% against the US dollar. Debtors areinvoiced in $US at the time of shipment, and paid in $US one month afterthe shipment is received. It takes around six weeks for the charter vesselsto travel from Twofold Bay to Japan. All plantations from which Forest Ltdsources timber are owned by US firms, which demand payment in $USprior to the timber being cut. A recent downturn in the Japanese economyis affecting forward orders, which have fallen by 15%.Required:(a) For each of the following itemRequired:(a) For each of the following items in Forest Ltd’s financial report,identify two (2) factors in the information provided that increaseaudit risk:(i) Accounts payable;(ii) Commitments and contingencies;(iii) Inventory; and(iv) Receivables.(b) Discuss one (1) adjustment to be made to your audit plan inresponse to the audit risk associated with each of the factorsidentified in part (a).(c) Outline six (6) factors that indicate Forest Ltd may encounter goingconcern problems over the next 12 months