Tom Petty has always been interested in latest fashion trends and believes that the fashion industry is an industry in which he can be successful. After serval months of research he has decided he has decided to establish a fashion clothes business, he has set up his own company, Chic Fashion ltd (CFL), with two old school buddies, James brown and George Harrison and listed it on the ASX (Australian Stock Exchange). James brown was previously the marketing executive for a clothing manufacturer that distributes its products through the major department stores throughout the Australia and he has established a sound network within the retail sector. George Harrison has worked as an accountant for a medium sized family company in the furniture industry for the several years. New Fashion wholesaler often finds it difficult to gain retail accounts, as many retailers are dismissive of new designers. However, tom has managed to get his garments into two major retail store chains. The retail stores requires the good to be supplied on the assignment, with the stores entitled to return any unsold items within the two weeks of the end of the seasons, in addition, sales to the stores are made on 90-day terms. As a result, cash is very tight as 70 percent is being sold on consignment. Tom believes that there are great synergies in expanding into the fashion accessories business. However, none of his management team has any experience in this type of business, so they have acquired a fashion accessories company, Fashion Adornments pty ltd, which has stores in all capital and most major regional centres. Tom has entered into an agreement for Fashion Adornments Pty Ltd to purchase its fashion watches from switch watches, which obtains trendy watches from mainland China and distributes them out of Hong Kong. Switch Watches will place the order with manufactures in China, Monitor the manufacturing operation and coordinate the shipping of the goods to Australia. Switch Watches doesn't have any long-term contracts with its manufacturing sources in China, but does not believe that this presents any problems, as it has been dealing with the supplier for several years without any problems. Tom wants his product to represent quality and to have a wide range of innovative features. He wants to commence with s watch but is a much more reasonable price. The Australian fashion watch market is characterise by several large leading players, who have well established relations with the large retail stores, the price of fashion watches in Australia market vary from very cheap to very expensive. Switch watches has been very successful at cooing the looks of expensive fashion accessories, including watches for several years, although the quality of their product is currently variable, their manufacturer have indicated that they are happy to upgrade production facilities to increase quality. Overtime, tom intends to expand Fashion Adornments Pty Ltd.'s product offering to include other fashion accessories, such as belts, wallets and purses. However he wants to establish the company successfully in the fashion watch market before expanding its product range into other fashion accessories. Required: Using the SWOT analysis, identify any weaknesses and threats that will assist in evaluating Fashion Adornments Pty Ltd.'s business risk and indicate how these may affect the audit of the financial report. Question 2 The continuation of assignment question above relating to chic fashion (CFL) new fashion Cloths Company. Refer to the background information provided there. A. Explain the effect on inherent risk of CFL's relationship with the department stores. B. Indicate two financial report items that would be affected and the assertions most at risk. Question 3 This is a continuation of assignment question with question 1 and question 2. As a part of its expansion plane, Chic Fashion Ltd (CFL) recently acquired Fashion Adornment, a fashion accessories company that operates in all capital cities and most major regional centres, due to the nature of business, most of the employees are employed on a casual basis and everyone is paid in cash. The payroll record are kept on the in house computer system maintained by Fashion Adornments Ltd at its Head Office in Sydney. All changes to the computer program must be approved by the IT manager. Fashion Adornments Ltd has two computer programmer and two computer operator programmer do not have access to the operating system, which is backed up daily and a copy of all computer files are stored at a separate location in a fire-proof safe. The entire computer system is protected with password, firewall and latest anti-viral software. Fashion Adornment uses a batch processing system, with the payroll data being input directly into the each store. A weekly department payroll listing is prepared by the paymaster at each store based on the timesheet approved by the department managers. A payroll assistant at each store totals the list, enters the details into the computer systems and compares the hours wormed as accepted by the system to the total calculated manually. The computer checks that employee number entered is a valid employee on the system. Wage rates from the employee master file are then applied to each employee's hours to determine the total payment. All the changes to wage rate on the employee master file must be approved by Human Resources Manager at Head Office in Sydney. Tests are applied during processing to ensure that the hours worked are within predefined limits. The paymaster at each store pays all employee in cash at the end of each week. On the receipt of their pay packet, each employee signs the payroll master listing. Required: Identify six application controls present within the payroll system that you may be able to place some reliance on and explain why each is a control. Question 4 This is a continuation of previous assignment question mentioned above: You are currently involved in the audit of Chi Fashion Ltd (CFL), a new fashion cloths company for the year ended 30th June 2012. To test control over the payment to creditor a sample of 50 payments were selected randomly from the cheque register and checked for evidence of control activities being carried out on the payments. The results were compared to the control activities laid down in CFL's Accountancy Manual and any exceptions noted.