A charitable organisation ABC Pty Ltd.’s revenue comes from donations, the sale of raffle tickets and from hosting fundraising dinners. Most revenue is received in cash, but increasingly, money comes from credit cards. Receipts are provided to people who donate money to the organisation so that they claim a taxation refund. Receipts are not issued for raffle ticket sales or for client payments to attend fundraising dinners.
Most expenditure is made in cash, except for office rent, telephone, utilities and the three employees’ wages. These are paid by direct debit from the bank account. One employee is the chief operating officer (CEO) who reports to the board of directors. He oversees the operation of the whole organisation but is particularly responsible for the purchase of any fixed assets and for negotiations on rent agreements, etc. His partner is the second employee. She is involved with the coordination of raffle ticket sales and the organisation of the fundraising activities. The third employee, the bookkeeper, looks after the accounting processes. The charity is managed by a board of directors which consists of two independent directors and the CEO. The board of directors meets monthly and always reviews the monthly (or annual) financial reports. The monthly report is prepared by the bookkeeper and includes a comparison of actual to budget results, and a comparison of this year to last year results. One member of the board holds a Masters of Commerce degree from XYZ University, with a major in accounting and has extensive work experience in a mid-tier accounting firm. The other director has significant experience working in a large charitable organisation. The two independent directors are very busy and rely heavily on the CEO. Board meetings are often hurried as one or other of the directors has to rush to another commitment. The CEO appoints and liaises with the external auditors. The CEO manages all risks within the company and does not bring these to the Directors as he knows they are very busy people.
The charity rents a small office in Burwood. Cash is held in the bookkeepers’ top desk drawer before banking. As the bookkeeper is very busy, the banking is undertaken once a week. Most expenses are paid by the bookkeeper from the cash collected from fundraising activities and donations although if there is not enough cash to pay for cash expenses, the bookkeeper withdraws cash from the bank account. There is no formal approval method for cash payments but the board of directors discusses all major expenditure in advance.
Required
You are an audit assistant working for Awesome Audits and ABC Pty Ltd. is a prospective client. The audit partner from Awesome Audits wants you to draft an internal memorandum based on the above information which addresses the following items:
1. Overall factors to consider when making the client acceptance decision on ABC Pty Ltd. (10 marks)
2. Perceived strengths in corporate governance in the prospective client. (15 marks)
3. Overview of perceived inherent and control risks in the prospective client. (15 marks)
4. Explain how and why the perceived risks may impact the audit strategy, especially regarding the amount of substantive procedures undertaken. (10 marks)
5. Proposed safeguards for the perceived risks identified in the prospective client. (10 marks)
6. Risk of liability for Awesome Audits if Succour Pty Ltd. stops paying rent. (15 marks)
You are not required to provide an opinion whether the prospective client should be accepted or not. Your task is to assist the audit partner on the decision process, supporting your arguments on the evidence provided, regulations and case law.
• Harvard style of referencing
• 2000 – 2500 words maximum and no minimum words limit
Criteria N P C D HD
1 Not able to provide factors to consider when making the client acceptance decision on client. Provide few factors to consider when making the client acceptance decision on client. Provide factors to consider when making the client acceptance decision on client. Provide factors to consider when making the client acceptance decision on client and support with regulation. Clearly and succinctly provide factors to consider when making the client acceptance decision on client and support with regulation.
2 Not able to list strengths in corporate governance in the prospective client. List one or two perceived strengths in corporate governance in the prospective client. List three perceived strengths in corporate governance in the prospective client. List and justify three perceived strengths in corporate governance in the prospective client. Clearly and succinctly list and justify three relevant perceived strengths in corporate governance in the prospective client.
3 Not able to list perceived inherent or control risks in the prospective client. List one or two perceived inherent and/or control risks in the prospective client. List three perceived inherent and/or control risks in the prospective client. List and justify three perceived inherent and/or control risks in the prospective client. Clearly and succinctly list and justify three perceived relevant inherent and/or control risks in the prospective client.
4 Not able to explain how and why the perceived risks may impact the audit strategy. Briefly explain how the perceived risks may impact the audit strategy. Explain how and why the perceived risks may impact the audit strategy. Explain how and why the perceived risks may impact the audit strategy and support with regulation. Clearly and succinctly explain how and why the perceived risks may impact the audit strategy and support with regulation.
5 Not able to provide safeguards for the perceived risks identified in the prospective client. Provide safeguards for one or two perceived risks identified in the prospective client. Provide safeguards for the three perceived risks identified in the prospective client. Provide safeguards for the three perceived risks identified in the prospective client and support with regulation. Clearly and succinctly provide safeguards for the three perceived risks identified in the prospective client and support with regulation.
6 Not able to define or identify the risk of liability for auditors. Define and identify some of the risk of liability for auditor if client stops paying rent. Define and identify the risk of liability for auditor if client stops paying rent. Define and identify the risk of liability for auditor if client stops paying rent and support with regulations and/or case law. Clearly and succinctly define and identify the risk of liability for auditor if client stops paying rent and support with regulations and/or case law.
0-49% 50- 59% 60- 69% 70-79% 80-100%