Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April. The company purchases its raw materials from a wide range of suppliers. Below is a description of Cherry’s purchasing system.
When production supervisors require raw materials, they complete a requisition form. and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested. Staff in the purchase ordering department use the requisitions to raise sequentially numbered purchase orders based on the approved suppliers list, which was last updated 24 months ago. The purchasing director authorises the orders prior to these being sent to the suppliers.
When the goods are received, the warehouse department verifies the quantity to the suppliers despatch note and checks that the quality of the goods received are satisfactory. They complete a sequentially numbered goods received note (GRN) and send a copy of the GRN to the finance department.
Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a manual file until the end of each week. He then inputs them into the purchase ledger using batch controls and gives each invoice a unique number based on the supplier code. The invoices are reviewed and authorised for payment by the finance director, but the actual payment is only made 60 days after the invoice is input into the system.
Required:
In respect of the purchasing system of Cherry Blossom Co:
(i) Identify and explain FIVE deficiencies; and
(ii) Recommend a control to address each of these deficiencies.
Note: The total marks will be split equally between each part.
第1题
Is the following statement true or false?
A significant change in the ownership of an existing audit client is a factor which makes it appropriate for the auditor to review the terms of engagement.
A.True
B.False
第2题
ands Co (Willow), a listed company which has been an audit client for eight years and specialises in manufacturing musical instruments.
Bethan Oak was the audit engagement partner for Willow and as she had completed seven years as the audit engagement partner, she has recently been rotated off the audit engagement. The current audit partner, Sandeep Pine, has suggested that in order to maintain a close relationship with Willow, Bethan should undertake the role of independent review partner this year. In addition Willow has requested that Bethan assist them by attending their audit committee meetings, as a non-executive director has recently left the company.
Willow has also asked Sandeep and the other partners at Beech & Co to help them in recruiting a new non-executive director.
The total fees received by Beech & Co for last year equated to 16% of the firm’s total fee income. The current year’s audit fee has not yet been confirmed, but along with taxation and other possible non-audit fees the total income from Willow this year could be greater than for last year. Last year’s audit fee was being paid monthly by Willow but no payments have been made for the last three months.
The audit manager for Willow has just announced that he is leaving Beech & Co to join Willow as the financial controller.
Required:
Using the information above:
(i) Identify and explain FIVE ethical threats which may affect the independence of Beech & Co’s audit of Willow Wands Co; and
(ii) For each threat explain how it might be reduced to an acceptable level.
Note: The total marks will be split equally between each part.
第3题
nal step before they form. their audit opinion. As part of this process they undertake a number of procedures.
Which of the following procedures would an auditor NOT undertake as part of the overall review of the financial statements?
A.Reviewing the financial statements to ensure they are consistent with the auditor’s knowledge of the business and the results of their audit work
B.Performing analytical procedures on the financial statements to form an overall conclusion on the financial statements
C.Undertaking a review of subsequent events to identify whether any adjustment or disclosure is required in the financial statements
D.Reviewing the financial statements to ensure compliance with accounting standards and local legislation disclosure
第4题
Which of the following is NOT a principle of the UK Corporate Governance Code?
A.There should be a rigorous and transparent procedure for the appointment of new directors to the board
B.The board should use the annual general meeting (AGM) to communicate with investors
C.The non-executive chairman should decide on the remuneration of all directors
D.All directors should receive induction training on joining the board
第5题
Which of the following is NOT an inherent limitation of internal control systems?
A.Insufficient segregation of duties
B.Possibility that employees may collude together fraudulently
C.Possibility of human error in undertaking tasks
第6题
Which of the following is a substantive audit procedure for wages and salaries?
A.Inspect a sample of clock cards for evidence of authorisation by a responsible official
B.Recalculate a sample of payroll deductions such as employment taxes to confirm accuracy
C.Attempt to access and make changes to the payroll master file using the log on for a junior clerk
第7题
ding the Entity and Its Environment describes the five components of an entity’s internal control.
Required:
Identify and briefly explain the FIVE components of an entity’s internal control. (5 marks)
(b) Bonsai Trading Co (Bonsai) manufactures electrical equipment, and its year end is 30 September 2015. You are the audit supervisor of Poplar & Co and are developing the audit programmes for the forthcoming interim audit. The company’s internal audit department has provided you with documentation relating to the non-current assets cycle including the related controls listed below.
– Bonsai has a capital expenditure committee and all purchase orders for capital items are required to be authorised by this committee.
– On receipt, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.
– When the asset arrives, a goods received note (GRN) is completed which details the nature of the expenditure (i.e. whether it is capital or revenue), and the GRN classification is reviewed and initialled by a responsible official. Copies of the GRNs relating to capital expenditure are then submitted to the finance department for updating of the non-current assets register.
– Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
– Access to the non-current assets register is restricted through passwords to a small number of staff in the finance department.
Required:
Describe a test of control which the auditor of Bonsai Trading Co would perform. to assess whether or not each of the non-current asset controls listed above is operating effectively. (5 marks)
第8题
if any, is/are correct?
(1) International Standards on Auditing (ISAs) are issued by the International Accounting Standards Board (IASB) and provide guidance on the performance and conduct of an audit
(2) In the event that ISAs differ from local legislation in a specific country, auditors must comply with the requirements of the ISAs
A.1 only
B.2 only
C.Both 1 and 2
D.Neither 1 nor 2
第9题
on-current assets?
A.Select a sample of assets included in the non-current asset register and physically verify them at the client premises
B.Review the repairs and maintenance expense account to identify any items of a capital nature
C.For assets disposed of, agree the sale proceeds to supporting documentation and cash book
第10题
d?
A.Recalculation involves the auditor’s independent execution of procedures or controls which were originally performed as part of the entity’s internal control
B.Confirmation consists of seeking information of knowledgeable persons, within the company or outside the company
C.Reperformance consists of checking the mathematical accuracy of documents or records
D.Observation consists of looking at a procedure or process being performed by others
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