Dolphin Surf & Leisure Holidays Pty Ltd (Dolphin) is a resort company based on the Great Barrier Reef. Its operations include boating, surfing, diving and other leisure activities, a backpackers hostel, a family hotel and a five-star resort. Justin and Sarah Morris own the majority of the shares in the Morris Group which controls Dolphin. Justin is the chairman of the board of directors of both Dolphin and the Morris Group, and Sarah is a director of both companies as well as the CFO of Dolphin. In February 2016, Justin Morris approached Clarke Partners to carry out the Dolphin audit for the year ended 30 June 2016. Dolphin has not been audited before but this year the audit has been requested by the companys bank and a new private equity investor group which has just acquired a 20 per cent share of Dolphin. Dolphin employs 30 full-time staff. These workers are employed in administration, accounting, catering, cleaning and hotel/restaurant duties. During peak periods, Dolphin also uses part-time and casual workers. These workers tend to be travellers visiting the Great Barrier Reef who are looking for short-term work to help pay their travelling expenses. Justin and Sarah have a fairly laid back management style. They trust their workers to work hard for the company and reward them well. Justin tells you that some accounts staff enjoy their jobs so much they have never taken any annual leave, and hardly any workers ever take sick leave. There are three people currently employed as accounts staff, the most senior of which is Peter Pinn. Peter heads the accounts department and reports directly to Sarah. He is in his fifties and plans to retire in two or three years. Peter prides himself on his ability to delegate most of his work to his two accounts staff, Kristen and Julie. He claims he has to do this because he is very busy developing a policy and procedures manual for the accounting department. This delegated work includes opening mail, processing payments and receipts, banking funds received, performing reconciliations, posting journals and performing the payroll function. Julie is a recent Chartered Accountant graduate. Kristen works part-time coming into the office on Mondays, Wednesdays and Fridays. Kristen is responsible for posting all journal entries into the accounting system and the payroll function. Julie does the balance of the work, but they often help each other out in busy periods.

1.What financial information could Clarke Partners use to understand its new client, Dolphin? Explain how it would be useful.

2.(a) Identify and explain any significant fraud risk factors for Dolphin. (b) For each fraud risk factor you identify in (a), explain how the risk will affect the approach to the audit of Dolphin.