Develop Problem Solving - Critical Thinking and Judgement Skills - Hangout Chain of Restaurants - Aaron Kweskia Auditing Case Study Assessment Answer

Internal Code: D_AI_DEGB_AHH

Aaron Kweskia Auditing Case Study Assessment Answer

TASK: This Assignment is designed to give students an opportunity to: 1. develop problem solving, critical thinking, and judgement skills in relation to the practice of auditing in contemporary business organisations 2. analyse and apply the regulatory framework that applies to auditing practice 3. effectively communicate results from the application of the auditing process. CASE STUDY INFORMATION Aaron Kweskia is the owner of the Hangout chain of restaurants (Hangout Restaurant Company), which provides full bar services as well as restaurant services. The company, which originally commenced business in Australia, and which is registered as a business in Australia, expanded its operations to the eastern cities of the USA, namely Boston and New York. The company recently opened two restaurants in the Californian area of the country, namely, Seal Beach and California 2. Seal Beach opened approximately 18 months ago, while California 2 is a recent opening. The business in the USA has been very profitable for Aaron. As part of his decision to open a restaurant in Seal Beach, Aaron entered into an agreement with a Californian grocery business whereby he agreed to pay the grocery business to advertise his Seal Beach restaurant on the back the receipts distributed by the grocery store. Such types of marketing strategies are common and are best described as coupon advertising. Typically, coupons come on the back of a receipt and include discounts offered by advertised businesses for future purchase of their particular product or services. Companies continue to use these techniques to attract consumers for their business. Customers of the grocery store may use their grocery store receipt to “redeem” the coupon that is printed on the back of the receipt and receive a discount on their Seal Beach restaurant bill. Aaron has found this form of advertising to be a very cost-effective marketing strategy. Sales at the Seal Beach restaurant have grown at a fairly rapid rate over the first 12 months. However, over the last few months, Aaron has noticed a significant fall in sales at the Seal Beach restaurant, which has caused him great concern. He became so concerned that he hired Charles, an Undercover Operative, to conduct covert surveillance of the operations at the restaurant (You may assume, for the purposes of this assignment that such covert operations are not subject to any legal impediments either in the USA or in Australia). As a result of this surveillance, Aaron has become very concerned about the possible extent of fraud in his business. Aaron contacts his auditors, Smart & Associates, requesting an urgent audit. Maxwell Smart is the Audit Partner of the firm and you are a key member of the auditing team. Aaron provides Maxwell with the video recordings of the surveillance operations. At a meeting with the Audit Partner, Maxwell Smart, Aaron asks whether the auditors can use these recordings for audit purposes so as to reduce the audit costs. As a key member of the audit team, you have been assigned responsibility to report to Maxwell on all matters relating to the audit. Requirement: Maxwell has requested that you provide a report to him that deals with the following issues at the Seal Beach restaurant: a. the auditor’s responsibility in relation to fraud and what the auditor must do in response to the issues identified at the Seal Beach restaurant; b. whether it is possible for the audit team to use the video supplied by Aaron as the basis for the audit of sales in order to reduce the audit costs to the client; c. the importance of the control environment or “setting the tone from the top”, in establishing a culture of honesty and integrity in the Hangout Restaurant Company; d. the current process that Seal Beach uses for accepting and dealing with coupons as well as the current internal controls over its sales and cash receipts that are in place at the restaurant; e. any weaknesses that you identified in the internal controls over sales and cash receipts; f. the factors that should be recognized by the auditor in this case as having an effect on the risk of fraud; and g. recommend improvements in internal controls over sales and cash receipts that will reduce the incidence of fraud.

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