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(a) (i) Identify and explain FOUR financial statement assertions relevant to classes of tr

(a) (i) Identify and explain FOUR financial statement assertions relevant to classes of transactions and events for the year under audit; and

(ii) For each identified assertion, describe a substantive procedure relevant to the audit of REVENUE. (8 marks)

(b) Hawthorn Enterprises Co (Hawthorn) manufactures and distributes fashion clothing to retail stores. Its year end was 31 March 2015. You are the audit manager and the year-end audit is due to commence shortly. The following three matters have been brought to your attention.

(i) Supplier statement reconciliations

Hawthorn receives monthly statements from its main suppliers and although these have been retained, none have been reconciled to the payables ledger as at 31 March 2015. The engagement partner has asked the audit senior to recommend the procedures to be performed on supplier statements. (3 marks)

(ii) Bank reconciliation

During last year’s audit of Hawthorn’s bank and cash, significant cut off errors were discovered with a number of post year-end cheques being processed prior to the year end to reduce payables. The finance director has assured the audit engagement partner that this error has not occurred again this year and that the bank reconciliation has been carefully prepared. The audit engagement partner has asked that the bank reconciliation is comprehensively audited. (4 marks)

(iii) Receivables

Hawthorn’s receivables ledger has increased considerably during the year, and the year-end balance is $2·3 million compared to $1·4 million last year. The finance director of Hawthorn has requested that a receivables circularisation is not carried out as a number of their customers complained last year about the inconvenience involved in responding. The engagement partner has agreed to this request, and tasked you with identifying alternative procedures to confirm the existence and valuation of receivables. (5 marks)

Required:

Describe substantive procedures you would perform. to obtain sufficient and appropriate audit evidence in relation to the above three matters.

Note: The mark allocation is shown against each of the three matters above.

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更多“(a) (i) Identify and explain FOUR financial statement assertions relevant to classes of tr”相关的问题

第1题

Which TWO of the following controls of a sales system ensure that all goods despatched are

completely and accurately invoiced?

(1) Good despatched notes are matched to sales invoices

(2) Sales invoices are sequentially numbered

(3) Sales invoices are matched to customer orders

(4) Regular review of unfulfilled orders

A.1 and 2

B.2 and 4

C.2 and 3

D.1 and 4

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第2题

Which TWO of the following statements regarding the use of analytical procedures during th

e PLANNING stage of the audit are correct?

(1) Analytical procedures are useful when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the company

(2) Analytical procedures can be used to obtain relevant and reliable audit evidence

(3) Analytical procedures can assist in identifying the risks of material misstatement

(4) Analytical procedures can assist in identifying unusual transactions and events

A.1 and 2

B.2 and 3

C.3 and 4

D.2 and 4

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第3题

Elounda Co manufactures chemical compounds using a continuous production process. Its year

end was 31 July 20X6 and the draft profit before tax is $13·6 million. You are the audit supervisor and the year-end audit is due to commence shortly. The following matters have been brought to your attention.

(i) Revaluation of property, plant and equipment (PPE)

At the beginning of the year, management undertook an extensive review of Elounda Co’s non-current asset valuations and as a result decided to update the carrying value of all PPE. The finance director, Peter Dullman, contacted his brother, Martin, who is a valuer and requested that Martin’s firm undertake the valuation, which took place in August 20X5. (5 marks)

(ii) Inventory valuation

Your firm attended the year-end inventory count for Elounda Co and ascertained that the process for recording work in progress (WIP) and finished goods was acceptable. Both WIP and finished goods are material to the financial statements and the quantity and stage of completion of all ongoing production was recorded accurately during the count.

During the inventory count, the count supervisor noted that a consignment of finished goods, compound E243, with a value of $720,000, was defective in that the chemical mix was incorrect. The finance director believes that compound E243 can still be sold at a discounted sum of $400,000. (6 marks)

(iii) Bank loan

Elounda Co secured a bank loan of $2·6 million on 1 October 20X4. Repayments of $200,000 are due quarterly, with a lump sum of $800,000 due for repayment in January 20X7. The company met all loan payments in 20X5 on time, but was late in paying the April and July 20X6 repayments. (4 marks)

Required:

(a) Describe substantive procedures you should perform. to obtain sufficient, appropriate audit evidence in relation to the above three matters.

Note: The mark allocation is shown against each of the three matters above.

(b) Describe the procedures which the auditor of Elounda Co should perform. in assessing whether or not the company is a going concern. (5 marks)

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第4题

Heraklion Co is a manufacturer of footballs and is a new audit client for your firm. You a

re an audit supervisor of Spinalonga & Co and are currently preparing for the forthcoming interim and final audit for the year ending 31 October 20X6. You are required to document and assess the sales system, recommend control improvements to deal with a specific fraud issue as well as undertake substantive testing of revenue.

Sales ordering, goods despatched and invoicing

Heraklion Co sells footballs to a range of large and small sports equipment retailers in several countries. Sales are made through a network of sales staff employed by Heraklion Co, but new customer leads are generated through a third party company. Sales staff are responsible for assessing new customers’ creditworthiness and proposing a credit limit which is then authorised by the sales director. The sales staff have monthly sales targets and are able to use their discretion in granting sales discounts up to a maximum of 10%. They then record any discount granted in the customer master data file.

The sales staff visit customer sites personally and orders are completed using a two-part pre-printed order form. One copy is left with the customer and the other copy is retained by the sales person. The sales order number is based on the sales person’s own identification (ID) number.

The company markets itself on being able to despatch all orders within three working days. Once the order is taken, the sales person emails the finance department and warehouse despatch team with the customer ID and the sales order details and from this a pick list is generated. Sequentially numbered goods despatched notes are completed and filed in the warehouse.

Sequentially numbered invoices are generated using the pick lists for quantities and the customer master data file for prices. Standard credit terms for customers are 30 days and on a monthly basis sales invoices which are over 90 days outstanding are notified to the relevant sales person to chase payment directly with the customer.

Payroll fraud

The finance director, Montse Mirabelle, has informed you that a significant fraud took place during the year in the payroll department. A number of fictitious employees were set up on the payroll and wages were paid into one bank account. This bank account belonged to two supervisors, who were married, and were employed by Heraklion Co. One had sole responsibility for setting up new joiners in the payroll system and the other processed and authorised bank transfer requests for wages and supplier payments. These employees no longer work for the company and Montse has asked the audit firm for recommendations on how to improve controls in this area to prevent this type of fraud occurring again. Heraklion Co operates a Human Resources department.

Required:

(a) Describe TWO methods for documenting the sales system, and for each explain ONE advantage and ONE disadvantage of using this method. (6 marks)

(b) Identify and explain SEVEN deficiencies in the sales system of Heraklion Co and provide a recommendation to address each of these deficiencies. Note: Prepare your answer using two columns headed Control deficiency and Control recommendation respectively. (14 marks)

(c) In relation to the payroll fraud, identify and explain THREE controls Heraklion Co should implement to reduce the risk of this type of fraud occurring again and, for each control, describe how it would mitigate the risk. (6 marks)

(d) Describe substantive procedures the auditor should perform. to obtain sufficient and appropriate audit evidence in relation to Heraklion Co’s revenue. (4 marks)

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第5题

The following scenario relates to questions 11–15Sycamore & Co is the auditor of Fir C

The following scenario relates to questions 11–15

Sycamore & Co is the auditor of Fir Co, a listed computer software company. The audit team comprises an engagement partner, a recently appointed audit manager, an audit senior and a number of audit assistants. The audit engagement partner has only been appointed this year due to the rotation of the previous partner who had been involved in the audit for seven years. Only the audit senior has experience of auditing a company in this specialised industry. The previous audit manager, who is a close friend of the new audit manager, left the firm before the completion of the prior year audit and is now the finance director of Fir Co.

The board of Fir Co has asked if Sycamore & Co can take on some additional work and have asked if the following additional non-audit services can be provided:

(1) Routine maintenance of payroll records

(2) Assistance with the selection of a new financial controller including the checking of references

(3) Tax services whereby Sycamore & Co would liaise with the tax authority on Fir Co’s behalf

Sycamore & Co has identified that the current year fees to be received from Fir Co for audit and other services will represent 16% of the firm’s total fee income and totalled 15·5% in the prior year. The audit engagement partner has asked you to consider what can be done in relation to this self-interest threat.

In relation to the composition of the current audit team, which of the following correctly identifies the fundamental principle which is at risk and provides an appropriate safeguard?

A.A

B.B

C.C

D.D

Which of the following identifies the threat which could arise as a result of the finance director’s previous employment at Sycamore & Co and recommends an appropriate safeguard?

A.A self-review threat; review the work performed by the previous audit manager

B.A familiarity threat; a different audit manager should be appointed

C.A self-review threat; change the existing audit plan

D.A familiarity threat; the firm should resign from the engagement

Ignoring the potential effect on total fee levels, which of the following options correctly identifies the threats to independence from providing the above non-audit services?

A.A

B.B

C.C

D.D

Which of the following safeguards would NOT be relevant in mitigating the threat identified in relation to fees?

A.Disclosure to those charged with governance that fees from Fir Co represent more than 15% of Sycamore & Co’s total fee income

B.A pre-issuance review to be conducted by an external accountant

C.The use of separate teams to provide the audit and non-audit services

D.A post-issuance review to be conducted by an external accountant or regulatory body

During the course of the audit of Fir Co, a suspicious cash transfer has been identified. The audit team has reported this to the relevant firm representative as a potential money-laundering transaction.

Which of the following statements is true regarding the confidentiality of this information?

A.Details of the transaction can only be disclosed with the permission of Fir Co

B.If there is a legal requirement to report money-laundering, this overrides the principle of confidentiality

C.Sycamore & Co is not permitted to disclose details of the suspicious transaction as the information has been obtained during the course of the audit

D.In order to maintain confidentiality, Sycamore & Co should report their concerns anonymously

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第6题

The following scenario relates to questions 6–10You are an audit manager at Blenkin &

The following scenario relates to questions 6–10

You are an audit manager at Blenkin & Co and are approaching the end of the audit of Sampson Co, which is a large listed retailer. The draft financial statements currently show a profit before tax of $6·5m and revenue of $66m for the financial year ended 30 June 20X6. You have been informed that the finance director left Sampson Co on 31 May 20X6.

As part of the subsequent events audit procedures, you reviewed post year-end board meeting minutes and discovered that a legal case for unfair dismissal has been brought against Sampson Co by the finance director. During a discussion with the Human Resources (HR) director of Sampson Co, you established that the company received notice of the proposed legal claim on 10 July 20X6.

The HR director told you that Sampson Co’s lawyers believe that the finance director’s claim is likely to be successful, but estimate that $150,000 is the maximum amount of compensation which would be paid. However, management does not intend to make any adjustments or disclosures in the financial statements.

Blenkin & Co has a responsibility to perform. procedures to obtain sufficient, appropriate evidence that subsequent events are appropriately reflected in the financial statements of Sampson Co.

Subsequent events procedures should be performed between the date of the financial statements and WHICH DATE?

A.The date the subsequent events review is performed

B.The date of approval of the financial statements

C.The date of the auditor’s report

D.The date the financial statements are issued

If, after the financial statements have been issued, Blenkin & Co becomes aware of a fact which may have caused its report to be amended, the firm should consider several possible actions.

Which of the following are appropriate actions for Blenkin & Co to take?

(1) Discuss the matter with management and, where appropriate, those charged with governance

(2) Obtain a written representation from management

(3) Consider whether the firm should resign from the engagement

(4) Enquire how management intends to address the matter in the financial statements where appropriate

A.1 and 2

B.1 and 4

C.2 and 3

D.3 and 4

Which of the following audit procedures should be performed to form. a conclusion as to whether the financial statements require amendment in relation to the unfair dismissal claim?

(1) Inspect relevant correspondence with Sampson Co’s lawyers

(2) Write to the finance director to confirm the claim and level of damages

(3) Review the post year-end cash book for evidence of payments to the finance director

(4) Request that management confirm their views in a written representation

A.1, 2 and 3

B.1, 2 and 4

C.1, 3 and 4

D.2, 3 and 4

You are drafting the auditor’s report for Sampson Co and the audit engagement partner has reminded you that the report will need to reflect the requirements of ISA 701 Communicating Key Audit Matters in the Independent Auditor’s Report.

According to ISA 701, which of the following should be included in the ‘Key Audit Matters’ paragraph in the auditor’s report?

A.Matters which required significant auditor attention

B.Matters which result in a modification to the audit opinion

C.All matters which were communicated to those charged with governance

D.All matters which are considered to be material to the financial statements

Which of the following audit opinions will be issued if the unfair dismissal case is NOT adjusted for or disclosed within the financial statements?

A.A qualified audit opinion as the financial statements are materially misstated

B.A qualified audit opinion as the auditor is unable to obtain sufficient appropriate evidence

C.An unmodified opinion with an emphasis of matter paragraph

D.An unmodified audit opinion

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第7题

The following scenario relates to questions 1–5You are an audit senior of Viola & Co a

The following scenario relates to questions 1–5

You are an audit senior of Viola & Co and are currently conducting the audit of Poppy Co for the year ended 30 June 20X6.

Materiality has been set at $50,000, and you are carrying out the detailed substantive testing on the year-end payables balance. The audit manager has emphasised that understatement of the trade payables balance is a significant audit risk.

Below is an extract from the list of supplier statements as at 30 June 20X6 held by the company and corresponding payables ledger balances at the same date along with some commentary on the noted differences:

Carnation Co

The difference in the balance is due to an invoice which is under dispute due to faulty goods which were returned on 29 June 20X6.

Lily Co

The difference in the balance is due to the supplier statement showing an invoice dated 28 June 20X6 for $70,000 which was not recorded in the financial statements until after the year end. The payables clerk has advised the audit team that the invoice was not received until 2 July 20X6.

The audit manager has asked you to review the full list of trade payables and select balances on which supplier statement reconciliations will be performed.

Which of the following items should you select for testing?

(1) Suppliers with material balances at the year end

(2) Suppliers which have a high volume of business with Poppy Co

(3) Major suppliers with nil balances at the year end

(4) Major suppliers where the statement agrees to the ledger

A.1 only

B.1, 2 and 3 only

C.2 and 4 only

D.1, 2, 3 and 4

Which of the following audit procedures should be performed in relation to the balance with Lily Co to determine if the payables balance is understated?

A.Inspect the goods received note to determine when the goods were received

B.Inspect the purchase order to confirm it is dated before the year end

C.Review the post year-end cashbook for evidence of payment of the invoice

D.Send a confirmation request to Lily Co to confirm the outstanding balance

Which of the following audit procedures should be carried out to confirm the balance owing to Carnation Co?

(1) Review post year-end credit notes for evidence of acceptance of return

(2) Inspect pre year-end goods returned note in respect of the items sent back to the supplier

(3) Inspect post year-end cash book for evidence that the amount has been settled

A.1, 2 and 3

B.1 and 3 only

C.1 and 2 only

D.2 and 3 only

The audit manager has asked you to review the results of some statistical sampling testing, which resulted in 20% of the payables balance being tested.

The testing results indicate that there is a $45,000 error in the sample: $20,000 which is due to invoices not being recorded in the correct period as a result of weak controls and additionally there is a one-off error of $25,000 which was made by a temporary clerk.

What would be an appropriate course of action on the basis of these results?

A.The error is immaterial and therefore no further work is required

B.The effect of the control error should be projected across the whole population

C.Poppy Co should be asked to adjust the payables figure by $45,000

D.A different sample should be selected as these results are not reflective of the population

To help improve audit efficiency, Viola & Co is considering introducing the use of computer assisted audit techniques (CAATs) for some audits. You have been asked to consider how CAATs could be used during the audit of Poppy Co.

Which of the following is an example of using test data for trade payables testing?

A.Selecting a sample of supplier balances for testing using monetary unit sampling

B.Recalculating the ageing of trade payables to identify balances which may be in dispute

C.Calculation of trade payables days to use in analytical procedures

D.Inputting dummy purchase invoices into the client system to see if processed correctly

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第8题

(a) Define audit risk and the components of audit risk. (5 marks)You are an audit supervis

(a) Define audit risk and the components of audit risk. (5 marks)

You are an audit supervisor of Amethyst & Co and are currently planning the audit of your client, Aquamarine Co (Aquamarine) which manufactures elevators. Its year end is 31 July 2016 and the forecast profit before tax is $15·2 million.

The company undertakes continuous production in its factory, therefore at the year end it is anticipated that work in progress will be approximately $950,000. In order to improve the manufacturing process, Aquamarine placed an order in April for $720,000 of new plant and machinery; one third of this order was received in May with the remainder expected to be delivered by the supplier in late July or early August.

At the beginning of the year, Aquamarine purchased a patent for $1·3 million which gives them the exclusive right to manufacture specialised elevator equipment for five years. In order to finance this purchase, Aquamarine borrowed $1·2 million from the bank which is repayable over five years.

In January 2016 Aquamarine outsourced its payroll processing to an external service organisation, Coral Payrolls Co (Coral). Coral handles all elements of the payroll cycle and sends monthly reports to Aquamarine detailing the payroll costs. Aquamarine ran its own payroll until 31 December 2015, at which point the records were transferred over to Coral.

The company has a policy of revaluing land and buildings and the finance director has announced that all land and buildings will be revalued at the year end. During a review of the management accounts for the month of May 2016, you have noticed that receivables have increased significantly on the previous year end and against May 2015.

The finance director has informed you that the company is planning to make approximately 65 employees redundant after the year end. No decision has been made as to when this will be announced, but it is likely to be prior to the year end.

Required:

(b) Describe SIX audit risks, and explain the auditor’s response to each risk, in planning the audit of Aquamarine Co. (12 marks)

(c) Explain the additional factors Amethyst & Co should consider during the audit in relation to Aquamarine Co’s use of the payroll service organisation. (3 marks)

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第9题

You are an audit senior of Hessonite & Co and are in the process of reviewing the inve

ntory system documentation for your audit client, Lemon Quartz Co (Quartz) which manufactures computer equipment. The company’s factory and warehouse are based on one large site, and their year end is 30 June 2016. Quartz is planning to undertake a full inventory count at the year end of its raw materials, work in progress and finished goods and you will be attending this count. In preparation you have been reviewing the inventory count instructions for finished goods provided by Quartz.

The count will be undertaken by 15 teams of two counters from the warehouse department with Quartz’s financial controller providing overall supervision. Each team of two is allocated a number of bays within the warehouse to count and they are provided with sequentially numbered inventory sheets which contain product codes and quantities extracted from the inventory records. The counters move through each allocated bay counting the inventory and confirming that it agrees with the inventory sheets. Where a discrepancy is found, they note this on the sheet.

The warehouse is large and approximately 10% of the bays have been rented out to third parties with similar operations; these are scattered throughout the warehouse. For completeness, the counters have been asked to count the inventory for all bays noting the third party inventories on separate blank inventory sheets, and the finance department will make any necessary adjustments.

Some of Quartz’s finished goods are high in value and are stored in a locked area of the warehouse and all the counting teams will be given the code to access this area. There will be no despatches of inventory during the count and it is not anticipated that there will be any deliveries from suppliers.

Each area is counted once by the allocated team; the sheets are completed in ink, signed by the team and returned after each bay is counted. As no two teams are allocated the same bays, there will be no need to flag that an area has been counted. On completion of the count, the financial controller will confirm with each team that they have returned their inventory sheets.

Required:

(a) In respect of the inventory count procedures for Lemon Quartz Co:

(i) Identify and explain FIVE deficiencies;

(ii) Recommend a control to address each of these deficiencies; and

(iii) Describe a TEST OF CONTROL the external auditors would perform. to assess if each of these controls, if implemented, is operating effectively.

Note: The total marks will be split equally between each part. (15 marks)

(b) Quartz’s finance director has asked your firm to undertake a non-audit assurance engagement later in the year. The audit junior has not been involved in such an assignment before and has asked you to explain what an assurance engagement involves.

Required:

Explain the five elements of an assurance engagement. (5 marks)

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第10题

Kyanite Pizzas Co (Kyanite) operates a large chain of fast food restaurants. You are an au

dit supervisor of Jasper & Co and are currently preparing the audit programmes for the audit of Kyanite’s financial statements for the year ended 31 March 2016. You are reviewing the notes of last week’s meeting between the audit manager and finance director where two material issues were discussed.

(i) Property, plant and equipment

In the past Kyanite has received negative press reports over the condition of its fast food restaurants, with comments suggesting they are old fashioned and tired looking. Therefore during the year the company undertook a full review of all its assets and carried out extensive refurbishments to the majority of its restaurants. This review resulted in a significant amount of ageing fixtures and fittings being disposed of and a significant amount of capital expenditure was invested in all remaining restaurants. (6 marks)

(ii) Equity The refurbishment was financed via a share issue in April 2015 at a premium of $1·6 million. (4 marks)

Required:

Describe substantive procedures you should perform. to obtain sufficient and appropriate audit evidence in relation to the above two matters.

Note: The mark allocation is shown against each of the two matters above.

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