Bateleur Zoo Gardens

Your name is Laura Liver, and you are an audit manager in a firm of Chartered Certified Accountants. You are responsible for the audit of Bateleur Zoo Gardens (BZG), the principal activity of which is the conservation of animals. Approximately 80% of the zoo's income comes from admission fees, money spent in the food and retail outlets and animal sponsorship. The remainder comprises donations and investment income.

Admission fees include day visitor entrance fees ('gate') and annual membership fees. Day tickets may be pre- booked by credit card using a telephone booking 'hotline' and via the zoo's website. Reduced fees are available (eg to students, senior citizens and families).

Animal sponsorships, which last for one year, make a significant contribution to the cost of specialist diets, enclosure maintenance and veterinary care. Animal sponsors benefit from the advertisement of their names at the sponsored animal's enclosure.
You have just received an email from Charlotte Brain, who is a senior partner in your firm:

To: Laura Liver
From: Charlotte Brain
Date: December
Subject: Bateleur Zoo Gardens Dear Laura,

It's that time of the year again, and it falls upon us to get started on the planning for the BZG audit. The new management team has so far shown itself to be very diligent, and has identified a number of risks that are in need of further consideration so that they can be managed actively. I'd like you to review the list and then prepare a memorandum for me, letting me know what sort of internal controls we'd expect to be in place to help manage each of the risks (12 marks), as well as what risks of material misstatement arise from each applicable risk. Please also comment on the factors to consider when planning the extent of substantive analytical procedures to be performed on BZG's income.

Here is the list of applicable risks that management has identified:

(i) Reduction in admission income through failure to invest in new exhibits and breeding programmes to attract visitors

(ii) Animal sponsorships may not be invoiced due to incomplete data transfer between the sponsoring and invoicing departments.

(iii) Corporate sponsorships may not be charged for at approved rates - either in error or due to arrangements with the companies. In particular, the sponsoring department may not notify the invoicing department of reciprocal arrangements, whereby sponsoring companies provide BZG with advertising (eg in company magazines and annual reports).

(iv) Cash received at the entrance gate ticket offices ('kiosks') may not be passed to cashiers in the accounts department (eg through theft).

(v) The ticket booking and issuing system may not be available.

(vi) Donations of animals to the collection (eg from taxation authority seizures and rare breeds enthusiasts) may not be recorded.

Required

Note. Professional marks will be available for the format and clarity of answers to part (a) above.

Comment on the responsibilities of management and auditors for internal controls. Discuss auditing and other current guidance in this area.