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(b) Using the information provided, state the financial statement risks arising and justify an appropriate audit
approach for Indigo Co for the year ending 31 December 2005. (14 marks)
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更多 “ (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) ” 相关考题
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(b) Explain how the non-payment of contributions and the change in the pension benefits should be treated inthe financial statements of Savage for the year ended 31 October 2005. (4 marks)
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4 Ryder, a public limited company, is reviewing certain events which have occurred since its year end of 31 October2005. The financial statements were authorised on 12 December 2005. The following events are relevant to thefinancial statements for the year ended 31 October 2005:(i) Ryder has a good record of ordinary dividend payments and has adopted a recent strategy of increasing itsdividend per share annually. For the last three years the dividend per share has increased by 5% per annum.On 20 November 2005, the board of directors proposed a dividend of 10c per share for the year ended31 October 2005. The shareholders are expected to approve it at a meeting on 10 January 2006, and adividend amount of $20 million will be paid on 20 February 2006 having been provided for in the financialstatements at 31 October 2005. The directors feel that a provision should be made because a ‘valid expectation’has been created through the company’s dividend record. (3 marks)(ii) Ryder disposed of a wholly owned subsidiary, Krup, a public limited company, on 10 December 2005 and madea loss of $9 million on the transaction in the group financial statements. As at 31 October 2005, Ryder had nointention of selling the subsidiary which was material to the group. The directors of Ryder have stated that therewere no significant events which have occurred since 31 October 2005 which could have resulted in a reductionin the value of Krup. The carrying value of the net assets and purchased goodwill of Krup at 31 October 2005were $20 million and $12 million respectively. Krup had made a loss of $2 million in the period 1 November2005 to 10 December 2005. (5 marks)(iii) Ryder acquired a wholly owned subsidiary, Metalic, a public limited company, on 21 January 2004. Theconsideration payable in respect of the acquisition of Metalic was 2 million ordinary shares of $1 of Ryder plusa further 300,000 ordinary shares if the profit of Metalic exceeded $6 million for the year ended 31 October2005. The profit for the year of Metalic was $7 million and the ordinary shares were issued on 12 November2005. The annual profits of Metalic had averaged $7 million over the last few years and, therefore, Ryder hadincluded an estimate of the contingent consideration in the cost of the acquisition at 21 January 2004. The fairvalue used for the ordinary shares of Ryder at this date including the contingent consideration was $10 per share.The fair value of the ordinary shares on 12 November 2005 was $11 per share. Ryder also made a one for fourbonus issue on 13 November 2005 which was applicable to the contingent shares issued. The directors areunsure of the impact of the above on earnings per share and the accounting for the acquisition. (7 marks)(iv) The company acquired a property on 1 November 2004 which it intended to sell. The property was obtainedas a result of a default on a loan agreement by a third party and was valued at $20 million on that date foraccounting purposes which exactly offset the defaulted loan. The property is in a state of disrepair and Ryderintends to complete the repairs before it sells the property. The repairs were completed on 30 November 2005.The property was sold after costs for $27 million on 9 December 2005. The property was classified as ‘held forsale’ at the year end under IFRS5 ‘Non-current Assets Held for Sale and Discontinued Operations’ but shown atthe net sale proceeds of $27 million. Property is depreciated at 5% per annum on the straight-line basis and nodepreciation has been charged in the year. (5 marks)(v) The company granted share appreciation rights (SARs) to its employees on 1 November 2003 based on tenmillion shares. The SARs provide employees at the date the rights are exercised with the right to receive cashequal to the appreciation in the company’s share price since the grant date. The rights vested on 31 October2005 and payment was made on schedule on 1 December 2005. The fair value of the SARs per share at31 October 2004 was $6, at 31 October 2005 was $8 and at 1 December 2005 was $9. The company hasrecognised a liability for the SARs as at 31 October 2004 based upon IFRS2 ‘Share-based Payment’ but theliability was stated at the same amount at 31 October 2005. (5 marks)Required:Discuss the accounting treatment of the above events in the financial statements of the Ryder Group for the yearended 31 October 2005, taking into account the implications of events occurring after the balance sheet date.(The mark allocations are set out after each paragraph above.)(25 marks)
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(ii) Explain the accounting treatment under IAS39 of the loan to Bromwich in the financial statements ofAmbush for the year ended 30 November 2005. (4 marks)
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(b) (i) Discuss the main factors that should be taken into account when determining how to treat gains andlosses arising on tangible non-current assets in a single statement of financial performance. (8 marks)
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(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with inthe group financial statements and how the loan to Briars should be treated in the financial statements ofBriars for the year ended 31 May 2006. (9 marks)
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(b) Prepare a consolidated statement of financial position of the Ribby Group at 31 May 2008 in accordancewith International Financial Reporting Standards. (35 marks)
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(b) Discuss the relative costs to the preparer and benefits to the users of financial statements of increaseddisclosure of information in financial statements. (14 marks)Quality of discussion and reasoning. (2 marks)
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(ii) Using the previous overhead allocation basis (as per note 4), calculate the budgeted profit/(loss)attributable to each type of service for the year ending 31 December 2006 and comment on the resultsobtained using the previous and revised methods of overhead allocation. (5 marks)
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(b) Comment (with relevant calculations) on the performance of the business of Quicklink Ltd and CelerTransport during the year ended 31 May 2005 and, insofar as the information permits, its projectedperformance for the year ending 31 May 2006. Your answer should specifically consider:(i) Revenue generation per vehicle(ii) Vehicle utilisation and delivery mix(iii) Service quality. (14 marks)
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(b) Calculate the corporation tax (CT) liabilities for Alantech Ltd, Boron Ltd and Bubble Ltd for the year ending31 December 2004 on the assumption that loss reliefs are taken as early as possible. (9 marks)
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(c) (i) Provide three examples of personal financial planning protection products that would be of use inHenry’s situation. Justify your selections by reference to the type of protection provided. (6 marks)
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(iii) State the value added tax (VAT) and stamp duty (SD) issues arising as a result of inserting Bold plc asa holding company and identify any planning actions that can be taken to defer or minimise these taxcosts. (4 marks)You should assume that the corporation tax rates for the financial year 2005 and the income tax ratesand allowances for the tax year 2005/06 apply throughout this question.
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(ii) The use of the trading loss of Tethys Ltd for the year ending 31 December 2008; (6 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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(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)
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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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(b) You are an audit manager with specific responsibility for reviewing other information in documents containingaudited financial statements before your firm’s auditor’s report is signed. The financial statements of Hegas, aprivately-owned civil engineering company, show total assets of $120 million, revenue of $261 million, and profitbefore tax of $9·2 million for the year ended 31 March 2005. Your review of the Annual Report has revealedthe following:(i) The statement of changes in equity includes $4·5 million under a separate heading of ‘miscellaneous item’which is described as ‘other difference not recognized in income’. There is no further reference to thisamount or ‘other difference’ elsewhere in the financial statements. However, the Management Report, whichis required by statute, is not audited. It discloses that ‘changes in shareholders’ equity not recognized inincome includes $4·5 million arising on the revaluation of investment properties’.The notes to the financial statements state that the company has implemented IAS 40 ‘Investment Property’for the first time in the year to 31 March 2005 and also that ‘the adoption of this standard did not have asignificant impact on Hegas’s financial position or its results of operations during 2005’.(ii) The chairman’s statement asserts ‘Hegas has now achieved a position as one of the world’s largestgenerators of hydro-electricity, with a dedicated commitment to accountable ethical professionalism’. Auditworking papers show that 14% of revenue was derived from hydro-electricity (2004: 12%). Publiclyavailable information shows that there are seven international suppliers of hydro-electricity in Africa alone,which are all at least three times the size of Hegas in terms of both annual turnover and population supplied.Required:Identify and comment on the implications of the above matters for the auditor’s report on the financialstatements of Hegas for the year ended 31 March 2005. (10 marks)
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(b) Identify and explain the financial statement risks to be taken into account in planning the final audit.(12 marks)
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5 You are an audit manager in Fox Steeple, a firm of Chartered Certified Accountants, responsible for allocating staffto the following three audits of financial statements for the year ending 31 December 2006:(a) Blythe Co is a new audit client. This private company is a local manufacturer and distributor of sportswear. Thecompany’s finance director, Peter, sees little value in the audit and put it out to tender last year as a cost-cuttingexercise. In accordance with the requirements of the invitation to tender your firm indicated that there would notbe an interim audit.(b) Huggins Co, a long-standing client, operates a national supermarket chain. Your firm provided Huggins Co withcorporate financial advice on obtaining a listing on a recognised stock exchange in 2005. Senior managementexpects a thorough examination of the company’s computerised systems, and are also seeking assurance thatthe annual report will not attract adverse criticism.(c) Gray Co has been an audit client since 1999 after your firm advised management on a successful buyout. Grayprovides communication services and software solutions. Your firm provides Gray with technical advice onfinancial reporting and tax services. Most recently you have been asked to conduct due diligence reviews onpotential acquisitions.Required:For these assignments, compare and contrast:(i) the threats to independence;(ii) the other professional and practical matters that arise; and(iii) the implications for allocating staff.(15 marks)
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(b) Explain what effect the acquisition of Di Rollo Co will have on the planning of your audit of the consolidatedfinancial statements of Murray Co for the year ending 31 March 2008. (10 marks)
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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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(b) Describe the potential benefits for Hugh Co in choosing to have a financial statement audit. (4 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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(ii) Identify and explain the potential financial statement risks caused by the breach of planning regulationsdiscussed in the press cutting. (6 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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