Kalahari Safaris Ltd. is a well-established luxury safari operator headquartered in Cape Town, with operations across several game reserves in South Africa, Botswana, and Namibia. The company has experienced significant growth in recent years, capitalizing on the increasing demand for eco-tourism experiences.
Your firm has been appointed as the new auditors for Kalahari Safaris Ltd. for the financial year ending 30 June 2024. During your initial planning meetings, you've gathered the following information:
The company's revenue has doubled in the past three years, reaching R750 million in the most recent financial year.
Kalahari Safaris has recently expanded into high-end mobile camping experiences, requiring significant investment in specialized equipment.
The company operates in multiple currencies and has complex revenue recognition policies due to advance bookings and package deals.
There have been recent changes in eco-tourism regulations across the countries where Kalahari Safaris operates.
The CFO, who has been with the company for 15 years, is due to retire at the end of the current financial year.
Required:
2.1 Define audit risk and explain its three components (inherent risk, control risk, and detection risk). For each component, provide an example specific to Kalahari Safaris Ltd. (9)
2.2 Explain the concept of materiality in auditing and discuss three factors you would consider when determining materiality for Kalahari Safaris Ltd. (8)
2.3 Identify and explain three specific areas where you believe the inherent risk might be high for Kalahari Safaris Ltd. Justify your answers. (6)
2.4 Briefly describe how your assessment of audit risk and materiality would influence your audit planning for Kalahari Safaris Ltd. (2)
