Edit View Go Window Help Upload Oncampus CO5118 Final Exam SP22 2021.pdf (page 2 of 6) Q Search in-house also known as the "SuperVac" that can eradicate the COVID-19 virus once and for all. Independent experts commissioned by Lee to verify this claim have reported that clinical trials to determine the effectiveness of the SuperVac are still ongoing and as such the efficacy of SuperVac is still inconclusive. They are of the view that it is unlikely that SuperVac will be approved for use by the relevant health authorities. This is because preliminary results indicate that SuperVac has caused more than half of the trial participants to suffer life-threatening severe headaches. As a consequence, SL's assets are overvalued and are being reported at greater than fair value. Gavin is adamant that the patent is critical to the future growth of the company. He does not believe that the severe headaches from the use of SuperVac is a cause for concern. In order to recognise the outstanding efforts of key employees, Gavin, Harry and Indigo have each been awarded $200,000 in bonus payments. Gavin has also implemented an employee retention scheme. Employees working in research and development will have their salaries automatically increased by 20% every year. The salaries of all other employees will remain the same. A SL has managed to maintain its previous year revenue of $100 million for the current financial year. This has been achieved despite the sales from its influenza vaccines decreasing significantly. A recent product recall of its influenza vaccines due to a contamination incident at the SL facility caused many of its regular Page 2 of 6 24 A 388 . & 5 6 Q W R T Y P A S D G H K Z X V B N MFile Edit View Go Window Help Upload Oncampus CO5118 Final Exam SP22 2021.pdf (page 2 of 6) Q Search Question 1 Sirrus Lid ("SL") is a biotechnology company that develops and sells innovative influenza vaccines that seeks to improve the lives of people. It employs several hundred staff and is based in Brisbane. Gavin is the CEO of SL. Harry is a world renown biochemist and he leads SL's research and development team. He has been working at SL since it was incorporated five years ago. Indigo is the Chief Financial Officer of SL. She started her career as a laboratory assistant with SL and has recently been promoted to Chief Financial Officer. Jeannie the previous Chief Financial Officer had resigned for personal reasons. Kelly is the new audit engagement partner for SL. Kelly's audit firm has been chosen to replace the outgoing auditors. SL's previous auditors had relinquished the role due to disagreements with SL's senior management. Lee is the senior auditor assigned to the engagement. In the course of his audit of the latest financial report for SL, he learns that Indigo is Gavin's wife. Lee also realizes that Indigo is Kelly's best friend from high school. Indigo and Kelly who are both keen cyclists, regularly cycle together in their free time. SL has invested heavily in research and development. As a consequence, SL is highly geared as compared to its competitors in the industry. This has affected its ability to service its loan repayments. According to Gavin, he is keen for SL to be listed on the ASX in the near future or perhaps even sold to venture capitalists who may be keen to pay top dollar for what SL is capable of achieving. When questioned further by Lee, Gavin informs him that SL owns a patent for a vaccine developed in-house also known as the "SuperVac" that can eradicate the COVID-19 virus once and for all. 24 A 44 S CO 6 Q W E R T O A S G H K Z X C V BEdit View Go Window Help Upload Oncampus CO5118 Final Exam SP22 2021.pdf (page 3 of 6) Q Search customers to seek out SL's competitors for similar products. There is a pending litigation class action against SL by those who have fallen ill after being injected with these contaminated vaccines. Despite this setback, the SL sales team has been working hard to meet their sales targets. Those that could not meet their sales targets have voluntarily resigned. SL is in the process of negotiating with its existing lenders to increase the amount of its loan facilities. It is unlikely that the financiers would agree to this unless a higher interest rate is agreed upon and a favourable audited report is issued. (a) List five main concerns that you should have in the audit of SL. [5 marks] (b ) Explain why each of those listed five are potential problems. [5 Marks] (c) In your view, how should this be handled in the financial report and audit report? Give reasons for your answer. [5 Marks] 24 23 A 44 A 5 6 9 Q W E R T U O P A 5 F G H K Z X C B N M