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(c) Comment on the matters to be considered in seeking to determine the extent of Indigo Co’s financial loss
resulting from the alleged fraud. (6 marks)
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更多 “ (c) Comment on the matters to be considered in seeking to determine the extent of Indigo Co’s financial lossresulting from the alleged fraud. (6 marks) ” 相关考题
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(b) Determine whether the factoring company’s offer can be recommended on financial grounds. Assume aworking year of 365 days and base your analysis on financial information for 2006. (8 marks)
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(e) Briefly provide five reasons to the management of Bailey’s why financial rewards could be considered to improve motivation. (5 marks)
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(b) Discuss how management’s judgement and the financial reporting infrastructure of a country can have asignificant impact on financial statements prepared under IFRS. (6 marks)Appropriateness and quality of discussion. (2 marks)
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(c) You have just been advised of management’s intention to publish its yearly marketing report in the annual reportthat will contain the financial statements for the year ending 31 December 2005. Extracts from the marketingreport include the following:‘Shire Oil Co sponsors national school sports championships and the ‘Shire Ward’ at the national teachinghospital. The company’s vision is to continue its investment in health and safety and the environment.‘Our health and safety, security and environmental policies are of the highest standard in the energy sector. Weaim to operate under principles of no-harm to people and the environment.‘Shire Oil Co’s main contribution to sustainable development comes from providing extra energy in a cleaner andmore socially responsible way. This means improving the environmental and social performance of ouroperations. Regrettably, five employees lost their lives at work during the year.’Required:Suggest performance indicators that could reflect the extent to which Shire Oil Co’s social and environmentalresponsibilities are being met, and the evidence that should be available to provide assurance on theiraccuracy. (6 marks)
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2 Your firm was appointed as auditor to Indigo Co, an iron and steel corporation, in September 2005. You are themanager in charge of the audit of the financial statements of Indigo, for the year ending 31 December 2005.Indigo owns office buildings, a workshop and a substantial stockyard on land that was leased in 1995 for 25 years.Day-to-day operations are managed by the chief accountant, purchasing manager and workshop supervisor whoreport to the managing director.All iron, steel and other metals are purchased for cash at ‘scrap’ prices determined by the purchasing manager. Scrapmetal is mostly high volume. A weighbridge at the entrance to the stockyard weighs trucks and vans before and afterthe scrap metals that they carry are unloaded into the stockyard.Two furnaces in the workshop melt down the salvageable scrap metal into blocks the size of small bricks that are thenstored in the workshop. These are sold on both credit and cash terms. The furnaces are now 10 years old and havean estimated useful life of a further 15 years. However, the furnace linings are replaced every four years. An annualprovision is made for 25% of the estimated cost of the next relining. A by-product of the operation of the furnaces isthe production of ‘clinker’. Most of this is sold, for cash, for road surfacing but some is illegally dumped.Indigo’s operations are subsidised by the local authority as their existence encourages recycling and means that thereis less dumping of metal items. Indigo receives a subsidy calculated at 15% of the market value of metals purchased,as declared in a quarterly return. The return for the quarter to 31 December 2005 is due to be submitted on21 January 2006.Indigo maintains manual inventory records by metal and estimated quality. Indigo counted inventory at 30 November2005 with the intention of ‘rolling-forward’ the purchasing manager’s valuation as at that date to the year-endquantities per the manual records. However, you were not aware of this until you visited Indigo yesterday to planyour year-end procedures.During yesterday’s tour of Indigo’s premises you saw that:(i) sheets of aluminium were strewn across fields adjacent to the stockyard after a storm blew them away;(ii) much of the vast quantity of iron piled up in the stockyard is rusty;(iii) piles of copper and brass, that can be distinguished with a simple acid test, have been mixed up.The count sheets show that metal quantities have increased, on average, by a third since last year; the quantity ofaluminium, however, is shown to be three times more. There is no suitably qualified metallurgical expert to valueinventory in the region in which Indigo operates.The chief accountant disappeared on 1 December, taking the cash book and cash from three days’ sales with him.The cash book was last posted to the general ledger as at 31 October 2005. The managing director has made anallegation of fraud against the chief accountant to the police.The auditor’s report on the financial statements for the year ended 31 December 2004 was unmodified.Required:(a) Describe the principal audit procedures to be carried out on the opening balances of the financial statementsof Indigo Co for the year ending 31 December 2005. (6 marks)
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(b) Using the information provided, state the financial statement risks arising and justify an appropriate auditapproach for Indigo Co for the year ending 31 December 2005. (14 marks)
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(c) During the year Albreda paid $0·1 million (2004 – $0·3 million) in fines and penalties relating to breaches ofhealth and safety regulations. These amounts have not been separately disclosed but included in cost of sales.(5 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Albreda Co for the year ended30 September 2005.NOTE: The mark allocation is shown against each of the three issues.
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4 (a) Explain the auditor’s responsibilities in respect of subsequent events. (5 marks)Required:Identify and comment on the implications of the above matters for the auditor’s report on the financialstatements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending30 September 2006.NOTE: The mark allocation is shown against each of the matters.
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(ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior hasdocumented that the finance director explained that Batik commenced trading on 7 October 2005, afterbeing set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained.(4 marks)Required:Identify and comment on the implications of the above matters for the auditor’s report on the financialstatements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending30 September 2006.NOTE: The mark allocation is shown against each of the matters.
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(b) The chief executive of Xalam Co, an exporter of specialist equipment, has asked for advice on the accountingtreatment and disclosure of payments made for security consultancy services. The payments, which aim toensure that consignments are not impounded in the destination country of a major customer, may be material tothe financial statements for the year ending 30 June 2006. Xalam does not treat these payments as taxdeductible. (4 marks)Required:Identify and comment on the ethical and other professional issues raised by each of these matters and state whataction, if any, Dedza should now take.NOTE: The mark allocation is shown against each of the three situations.
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(c) Your firm has provided financial advice to the Pholey family for many years and this has sometimes involved yourfirm in carrying out transactions on their behalf. The eldest son, Esau, is to take up a position as a seniorgovernment official to a foreign country next month. (4 marks)Required:Identify and comment on the ethical and other professional issues raised by each of these matters and state whataction, if any, Dedza should now take.NOTE: The mark allocation is shown against each of the three situations
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(b) A sale of industrial equipment to Deakin Co in May 2005 resulted in a loss on disposal of $0·3 million that hasbeen separately disclosed on the face of the income statement. The equipment cost $1·2 million when it waspurchased in April 1996 and was being depreciated on a straight-line basis over 20 years. (6 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended31 March 2006.NOTE: The mark allocation is shown against each of the three issues.
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(c) In April 2006, Keffler was banned by the local government from emptying waste water into a river because thewater did not meet minimum standards of cleanliness. Keffler has made a provision of $0·9 million for thetechnological upgrading of its water purifying process and included $45,000 for the penalties imposed in ‘otherprovisions’. (5 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended31 March 2006.NOTE: The mark allocation is shown against each of the three issues.
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(b) You are the audit manager of Johnston Co, a private company. The draft consolidated financial statements forthe year ended 31 March 2006 show profit before taxation of $10·5 million (2005 – $9·4 million) and totalassets of $55·2 million (2005 – $50·7 million).Your firm was appointed auditor of Tiltman Co when Johnston Co acquired all the shares of Tiltman Co in March2006. Tiltman’s draft financial statements for the year ended 31 March 2006 show profit before taxation of$0·7 million (2005 – $1·7 million) and total assets of $16·1 million (2005 – $16·6 million). The auditor’sreport on the financial statements for the year ended 31 March 2005 was unmodified.You are currently reviewing two matters that have been left for your attention on the audit working paper files forthe year ended 31 March 2006:(i) In December 2004 Tiltman installed a new computer system that properly quantified an overvaluation ofinventory amounting to $2·7 million. This is being written off over three years.(ii) In May 2006, Tiltman’s head office was relocated to Johnston’s premises as part of a restructuring.Provisions for the resulting redundancies and non-cancellable lease payments amounting to $2·3 millionhave been made in the financial statements of Tiltman for the year ended 31 March 2006.Required:Identify and comment on the implications of these two matters for your auditor’s reports on the financialstatements of Johnston Co and Tiltman Co for the year ended 31 March 2006. (10 marks)
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(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in theconsolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,$4·5 million, in its separate financial statements.Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes toAragon’s financial statements disclose that they have been prepared on a going concern basis that assumes thatSeymour will continue to provide financial support. (7 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Seymour Co for the year ended30 September 2006.NOTE: The mark allocation is shown against each of the three issues.
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(b) Explain the matters that should be considered when planning the nature and scope of the examination ofCusiter Co’s forecast balance sheet and income statement as prepared for the bank. (7 marks)
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(c) Describe the examination procedures you should use to verify Cusiter Co’s prospective financial information.(9 marks)
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3 You are the manager responsible for the audit of Lamont Co. The company’s principal activity is wholesaling frozenfish. The draft consolidated financial statements for the year ended 31 March 2007 show revenue of $67·0 million(2006 – $62·3 million), profit before taxation of $11·9 million (2006 – $14·2 million) and total assets of$48·0 million (2006 – $36·4 million).The following issues arising during the final audit have been noted on a schedule of points for your attention:(a) In early 2007 a chemical leakage from refrigeration units owned by Lamont caused contamination of some of itsproperty. Lamont has incurred $0·3 million in clean up costs, $0·6 million in modernisation of the units toprevent future leakage and a $30,000 fine to a regulatory agency. Apart from the fine, which has been expensed,these costs have been capitalised as improvements. (7 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
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(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirementsto Hogg Warehousing Services. At 31 March 2007 it was not possible to physically inspect Lamont’s inventoryheld by Hogg due to health and safety requirements preventing unauthorised access to cold storage areas.Lamont’s management has provided written representation that inventory held at 31 March 2007 was$10·1 million (2006 – $6·7 million). This amount has been agreed to a costing of Hogg’s monthly return ofquantities held at 31 March 2007. (7 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
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(c) Lamont owns a residential apartment above its head office. Until 31 December 2006 it was let for $3,000 amonth. Since 1 January 2007 it has been occupied rent-free by the senior sales executive. (6 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
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(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steelcookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. Thenotes to the financial statements disclose the following:‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects inmaterials and workmanship under normal household use within a 10-year guarantee period. No provisionhas been recognised as the amount of the obligation cannot be measured with sufficient reliability.’(4 marks)Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.Required:Identify and comment on the implications of these two matters for your auditor’s report on the financialstatements of Petrie Co for the year ended 31 March 2007.NOTE: The mark allocation is shown against each of the matters above.
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(b) (i) Explain the matters you should consider to determine whether capitalised development costs areappropriately recognised; and (5 marks)
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(c) Identify and discuss the ethical and professional matters raised at the inventory count of LA Shots Co.(6 marks)
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(c) With specific reference to Hugh Co, discuss the objective of a review engagement and contrast the level ofassurance provided with that provided in an audit of financial statements. (6 marks)
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(b) (i) Explain the matters you should consider, and the evidence you would expect to find in respect of thecarrying value of the cost of investment of Dylan Co in the financial statements of Rosie Co; and(7 marks)
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You are an audit manager responsible for providing hot reviews on selected audit clients within your firm of CharteredCertified Accountants. You are currently reviewing the audit working papers for Pulp Co, a long standing audit client,for the year ended 31 January 2008. The draft statement of financial position (balance sheet) of Pulp Co shows totalassets of $12 million (2007 – $11·5 million).The audit senior has made the following comment in a summary ofissues for your review:‘Pulp Co’s statement of financial position (balance sheet) shows a receivable classified as a current asset with a valueof $25,000. The only audit evidence we have requested and obtained is a management representation stating thefollowing:(1) that the amount is owed to Pulp Co from Jarvis Co,(2) that Jarvis Co is controlled by Pulp Co’s chairman, Peter Sheffield, and(3) that the balance is likely to be received six months after Pulp Co’s year end.The receivable was also outstanding at the last year end when an identical management representation was provided,and our working papers noted that because the balance was immaterial no further work was considered necessary.No disclosure has been made in the financial statements regarding the balance. Jarvis Co is not audited by our firmand we have verified that Pulp Co does not own any shares in Jarvis Co.’Required:(b) In relation to the receivable recognised on the statement of financial position (balance sheet) of Pulp Co asat 31 January 2008:(i) Comment on the matters you should consider. (5 marks)
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JJG Co is planning to raise $15 million of new finance for a major expansion of existing business and is considering a rights issue, a placing or an issue of bonds. The corporate objectives of JJG Co, as stated in its Annual Report, are to maximise the wealth of its shareholders and to achieve continuous growth in earnings per share. Recent financial information on JJG Co is as follows:Required:(a) Evaluate the financial performance of JJG Co, and analyse and discuss the extent to which the company has achieved its stated corporate objectives of:(i) maximising the wealth of its shareholders;(ii) achieving continuous growth in earnings per share.Note: up to 7 marks are available for financial analysis.(12 marks)(b) If the new finance is raised via a rights issue at $7·50 per share and the major expansion of business hasnot yet begun, calculate and comment on the effect of the rights issue on:(i) the share price of JJG Co;(ii) the earnings per share of the company; and(iii) the debt/equity ratio. (6 marks)(c) Analyse and discuss the relative merits of a rights issue, a placing and an issue of bonds as ways of raising the finance for the expansion. (7 marks)
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