Case

The external auditing standards require the auditor to obtain an understanding

of controls that are relevant to the audit process and assess whether they are

sufficiently designed to prevent or detect material misstatements that might be

made in the financial statements. Then the auditor is also required to test

whether these controls have been implemented and work effectively to prevent

or detect such material misstatements.

Furthermore, the auditing standards require auditors to identify where and how

the financial statements may possibly carry a higher risk of being materially

misstated. The auditor uses that understanding to help design what further audit

procedures might be effective in detecting any material misstatement that may

exist.

Given the above, you have been selected as a member of the audit team

responsible for auditing the financial statements of Holiday Cruises, a company

operating leisure cruises since a few years ago from ports on the Arabian Gulf

and North Africa. Holiday Cruises sells cruises bookings to individuals and

travel agents. The majority of these sales transactions are mainly conducted via

its website and some using traditionally sales offices located in the main cities.

All cruises are paid in advance, with a 10% deposit on booking and the

remainder collected at least four weeks before sailing. Travel agents collect

money from their customers, deduct their commissions and forward the

remainder to the cruise company before the deadline. Holiday Cruises company

provides additional discounts for large groups bookings, and these discounts are

solely identified and approved by Mr Talal, the supervisor for large group

bookings. The audit team has made a preliminary assessment that the client has

low control risk over sales transactions and the accounts receivable and plans to

conduct supporting extensive testing of controls over sales and accounts

receivable areas to support this assessment.

The preliminary assessment of controls over operations revealed that the

operations supervisor employs new casual (temporary) staff to do the catering

and other supporting work whenever seasonal demand increases. He sets their

hourly pay rate based on his assessment of their experience. He asks new staff

to write their bank account details on their first timesheet to transfer the wages

payments to them electronically. At the end of the day, he collects timesheets

(which are not sequentially numbered from each casual employee and hands

them to the payroll officer. For some casual employees, English is not their first

language, so the supervisor regularly needs to adjust the timesheets before giving

them to the payroll officer to ensure they are correct. Question 1

As part of understanding the client's environment, the audit team can

conduct a general PESTEL and SWOT analysis for the client

company mentioned above. Explain the factors assessed by these

analyses by giving relevant examples for each factor for the company's

line of business.

The external auditing standards require the auditor to obtain an anertanding of controls that are relevant to the audit process and assess whether they are sufficiently designed to prevent or detect material misstatements that might be made in the financial statements. Then the auditor is also required to test whether these controls have been implemented and work effectively to prevent or detect such material misstatements Furthermore, the auditing standards require adiners to identify where and hone the financial statements may possibly carry ty a higher risk of being materially mintated. The auditor uses that understanding to help designs what further audit procedures might be effective in detecting any material tinatatement that may exist. Given the above, you have been selected member of the wait team responsible for auditing the financial statement of Hoday Cruises, a company operating leisure cruises since a few years ago from ponts on the Arabian Gulf and North Africa. Holiday Cruises sells Cruises booking to individuals and travel agents. The majority of these sales transactions are mainly conducted via its website and some using tradisonally sales offices located in the main cities, All cruises are paid in advance, with a 10% deposit on booking and the reminder collected at least four weeks before sailing Travages collect money from their customers, deduct their commissions and forward the remainder to the cruise company before the deadline. Hoiday Cruises company prwvides additional discounts for large groups bookings, and these discounts are solely identified and apprewed by Mr Talal, the supervisor for lange moup bookings. The audit cam has made a preliminary assessment that the client has low control risk over sales transactions and the accounts receivable and plans to conduct supporting extensive testing of control over sales and accounts 2 receivable areas to support this assessment The preliminary assessment of control over operaties tevealed that the operations supervisor employs tes casual (temporary staff to do the catering iniciother supporting work whenever seasonal demand increases. He sees their hourly pay rate based on his assessment of their experience. He asks new staff to write their bank account details on their first timesheet to transfer the ages payments to them clectronically. At the end of the day, he collectimesheets (which are not sequentially numbered from each cual employee and hands them to the pumil officer. For some canal employees, English is not their fint language, so the supervisor regularly needs to adjust the timesheets before going them to the payroll officer to ensure they are correct. 1. As part of understanding the client's environment, the audit team can conduct a general PESTEL and SWOT analysis for the client company mentioned above. Explain the factors assessed by these analyses by giving relevant examples for each factor for the company's line of business. The external auditing standards require the auditor to obtain an anertanding of controls that are relevant to the audit process and assess whether they are sufficiently designed to prevent or detect material misstatements that might be made in the financial statements. Then the auditor is also required to test whether these controls have been implemented and work effectively to prevent or detect such material misstatements Furthermore, the auditing standards require adiners to identify where and hone the financial statements may possibly carry ty a higher risk of being materially mintated. The auditor uses that understanding to help designs what further audit procedures might be effective in detecting any material tinatatement that may exist. Given the above, you have been selected member of the wait team responsible for auditing the financial statement of Hoday Cruises, a company operating leisure cruises since a few years ago from ponts on the Arabian Gulf and North Africa. Holiday Cruises sells Cruises booking to individuals and travel agents. The majority of these sales transactions are mainly conducted via its website and some using tradisonally sales offices located in the main cities, All cruises are paid in advance, with a 10% deposit on booking and the reminder collected at least four weeks before sailing Travages collect money from their customers, deduct their commissions and forward the remainder to the cruise company before the deadline. Hoiday Cruises company prwvides additional discounts for large groups bookings, and these discounts are solely identified and apprewed by Mr Talal, the supervisor for lange moup bookings. The audit cam has made a preliminary assessment that the client has low control risk over sales transactions and the accounts receivable and plans to conduct supporting extensive testing of control over sales and accounts 2 receivable areas to support this assessment The preliminary assessment of control over operaties tevealed that the operations supervisor employs tes casual (temporary staff to do the catering iniciother supporting work whenever seasonal demand increases. He sees their hourly pay rate based on his assessment of their experience. He asks new staff to write their bank account details on their first timesheet to transfer the ages payments to them clectronically. At the end of the day, he collectimesheets (which are not sequentially numbered from each cual employee and hands them to the pumil officer. For some canal employees, English is not their fint language, so the supervisor regularly needs to adjust the timesheets before going them to the payroll officer to ensure they are correct. 1. As part of understanding the client's environment, the audit team can conduct a general PESTEL and SWOT analysis for the client company mentioned above. Explain the factors assessed by these analyses by giving relevant examples for each factor for the company's line of business