Reference no: EM132728901

Question: On-The-Go Surf & Leisure Holidays Ltd. (OTG) is a resort company based in Niagara-On-The-Lake. Its operations include boating, surfing, diving, and other leisure activities: a backpackers' hostel, a family hostel, and a five-star resort. Lee and Bree Smith own the majority of the shared in the LBS Group, which controls OTG. Lee is the chairman of the Board of Directors of both OTG and the LBS Group, and Bree is a director of both companies and the Chief Financial Officer (CFO) of OTG.

In February 2020, Lee Smith approached your audit firm, Cartman, Griffin, & Simpson LLP, to carry out the OTG audit for the year ending June 30, 2020. OTG has not been audited before, but this year the audit has been requested by the company's bank and a new private equity investor group that has just acquired a 20% share of OTG.

OTG employs 30 full-time staff. These workers are employed in administration, accounting, catering, cleaning, and hotel / restaurant duties. During peak periods, OTG also uses part-time and casual workers. These workers tend to be travelers visiting the west coast who are looking for short-term employment to help pay their travelling expenses.

Lee and Bree have a laidback management style. They trust their workers to work hard and reward them well. Particularly, the accounting staff are very loyal to the company. Lee tells you that some accounting staff enjoy their jobs so much that they have never taken any holidays, and hardly any workers ever take sick leave.

There are three people currently employed as the accountants, the most senior of which is June Snow. June heads the accounting department and reports directly to Bree. She is in her sixties and plans to retire in two or three years. June prides herself on her ability to delegate most of her work to her two accounting staff, April and May. She claims she has to complete it because she 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. April is a recently graduated chartered accountant. May works part-time, coming into the office on Mondays, Wednesdays, and Fridays. April is responsible for posting all journal entries into the accounting system and the payroll function. May does the balance of the work, but they often help each other out in busy periods.

a) List the key factors that your audit firm should consider before accepting to conduct this audit.

b) Determine the inherent and control risks for OTG's accounting processes as well as the implications of such risks.

c) Using the factors identified in a) and b), assess the overall audit risk and present the supporting rationale.

d) How will this assessment of the audit risk impact your overall audit strategy?