QUESTION $4$

You are assigned to the audit of Splendour Seas $($Pty$)$ Ltd $($Splendour$),$ for the financial year ending

$30$ June $2023.$ Splendour is a passenger shipping company specializing in providing $7$ day, $10$ day

or $14-$day all$-$inclusive shipping cruises. Splendour sails in the Indian Ocean off the east coast of

Namibia and northwards towards Mozambique.

You have been tasked with gathering information regarding the audit risks at Splendour in order

to complete the audit plan. From your discussions and formal meetings, you established the

following:

Due to the increasing popularity and in order to expand their cruise offering, Splendour will need

to increase their current fleet of ships. They have ordered $3$ ships from a large shipping company

situated in Italy at an approximate cost of $N$$$600$ million, but it is unsure whether these ships will

be received by the year$-$end. Splendour also spent $N$$$100$ million in refurbishing and modernizing

the ships in their current fleet. In order to finance this expenditure, Splendour has applied for a

loan from investment Bank for $$550$ million, and are anxiously awaiting the outcome of this loan

application.

Splendour receives bookings for their cruises up to $18$ months in advance from their website as

well as selected travel agents specializing in upmarket cruises. Their website has been always

known in the industry as being one of the best $-$ both in terms of security, ease of use and

reliability. However, Splendour have recently been faced with customers complaining that their

booking was confirmed and paid for but Splendour had no record of the booking, hence the same

cabin was sold to other customers for the same cruise dates.

Splendour receives its booking fees net from travel agents after a $60-$day period $($fixed at $5\%$ of

the total booking cost excluding taxes$).$ Splendour had difficulty collecting the booking fees from

travel agents in recent times, as travel agents are struggling to pay due to difficult economic

times.

Due to the fact that more than $90\%$ of bookings are now being made through their website,

Splendour decided to scale down their telephonic ticket office heavily $($which was located on one

floor of the companies head office in Walvis Bay$)$ and reduced the number of agents from $37$ to

$3$ through a retrenchment process during the current financial year

YOU ARE REQUIRED TO:

$(15$ marks$)$

Based on the information in the scenario, describe the audit risks and the auditor's response

thereto in planning the audit of Splendour Seas $($Pty$)$ Ltd for the year ending $30$ June $2023.$

Detailed audit procedures are not required.