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5 You are the manager responsible for the audit of Blod Co, a listed company, for the year ended 31 March 2008. Your
firm was appointed as auditors of Blod Co in September 2007. The audit work has been completed, and you are
reviewing the working papers in order to draft a report to those charged with governance. The statement of financial
position (balance sheet) shows total assets of $78 million (2007 – $66 million). The main business activity of Blod
Co is the manufacture of farm machinery.
During the audit of property, plant and equipment it was discovered that controls over capital expenditure transactions
had deteriorated during the year. Authorisation had not been gained for the purchase of office equipment with a cost
of $225,000. No material errors in the financial statements were revealed by audit procedures performed on property,
plant and equipment.
An internally generated brand name has been included in the statement of financial position (balance sheet) at a fair
value of $10 million. Audit working papers show that the matter was discussed with the financial controller, who
stated that the $10 million represents the present value of future cash flows estimated to be generated by the brand
name. The member of the audit team who completed the work programme on intangible assets has noted that this
treatment appears to be in breach of IAS 38 Intangible Assets, and that the management refuses to derecognise the
asset.
Problems were experienced in the audit of inventories. Due to an oversight by the internal auditors of Blod Co, the
external audit team did not receive a copy of inventory counting procedures prior to attending the count. This caused
a delay at the beginning of the inventory count, when the audit team had to quickly familiarise themselves with the
procedures. In addition, on the final audit, when the audit senior requested documentation to support the final
inventory valuation, it took two weeks for the information to be received because the accountant who had prepared
the schedules had mislaid them.
Required:
(a) (i) Identify the main purpose of including ‘findings from the audit’ (management letter points) in a report
to those charged with governance. (2 marks)
参考答案
更多 “ 5 You are the manager responsible for the audit of Blod Co, a listed company, for the year ended 31 March 2008. Yourfirm was appointed as auditors of Blod Co in September 2007. The audit work has been completed, and you arereviewing the working papers in order to draft a report to those charged with governance. The statement of financialposition (balance sheet) shows total assets of $78 million (2007 – $66 million). The main business activity of BlodCo is the manufacture of farm machinery.During the audit of property, plant and equipment it was discovered that controls over capital expenditure transactionshad deteriorated during the year. Authorisation had not been gained for the purchase of office equipment with a costof $225,000. No material errors in the financial statements were revealed by audit procedures performed on property,plant and equipment.An internally generated brand name has been included in the statement of financial position (balance sheet) at a fairvalue of $10 million. Audit working papers show that the matter was discussed with the financial controller, whostated that the $10 million represents the present value of future cash flows estimated to be generated by the brandname. The member of the audit team who completed the work programme on intangible assets has noted that thistreatment appears to be in breach of IAS 38 Intangible Assets, and that the management refuses to derecognise theasset.Problems were experienced in the audit of inventories. Due to an oversight by the internal auditors of Blod Co, theexternal audit team did not receive a copy of inventory counting procedures prior to attending the count. This causeda delay at the beginning of the inventory count, when the audit team had to quickly familiarise themselves with theprocedures. In addition, on the final audit, when the audit senior requested documentation to support the finalinventory valuation, it took two weeks for the information to be received because the accountant who had preparedthe schedules had mislaid them.Required:(a) (i) Identify the main purpose of including ‘findings from the audit’ (management letter points) in a reportto those charged with governance. (2 marks) ” 相关考题
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3 You are the manager responsible for the audit of Albreda Co, a limited liability company, and its subsidiaries. Thegroup mainly operates a chain of national restaurants and provides vending and other catering services to corporateclients. All restaurants offer ‘eat-in’, ‘take-away’ and ‘home delivery’ services. The draft consolidated financialstatements for the year ended 30 September 2005 show revenue of $42·2 million (2004 – $41·8 million), profitbefore taxation of $1·8 million (2004 – $2·2 million) and total assets of $30·7 million (2004 – $23·4 million).The following issues arising during the final audit have been noted on a schedule of points for your attention:(a) In September 2005 the management board announced plans to cease offering ‘home delivery’ services from theend of the month. These sales amounted to $0·6 million for the year to 30 September 2005 (2004 – $0·8million). A provision of $0·2 million has been made as at 30 September 2005 for the compensation of redundantemployees (mainly drivers). Delivery vehicles have been classified as non-current assets held for sale as at 30September 2005 and measured at fair value less costs to sell, $0·8 million (carrying amount,$0·5 million). (8 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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(b) Historically, all owned premises have been measured at cost depreciated over 10 to 50 years. The managementboard has decided to revalue these premises for the year ended 30 September 2005. At the balance sheet datetwo properties had been revalued by a total of $1·7 million. Another 15 properties have since been revalued by$5·4 million and there remain a further three properties which are expected to be revalued during 2006. Arevaluation surplus of $7·1 million has been credited to equity. (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 Albreda Co for the year ended30 September 2005.NOTE: The mark allocation is shown against each of the three issues.
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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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(b) You are the audit manager of Jinack Co, a private limited liability company. You are currently reviewing twomatters that have been left for your attention on the audit working paper file for the year ended 30 September2005:(i) Jinack holds an extensive range of inventory and keeps perpetual inventory records. There was no fullphysical inventory count at 30 September 2005 as a system of continuous stock checking is operated bywarehouse personnel under the supervision of an internal audit department.A major systems failure in October 2005 caused the perpetual inventory records to be corrupted before theyear-end inventory position was determined. As data recovery procedures were found to be inadequate,Jinack is reconstructing the year-end quantities through a physical count and ‘rollback’. The reconstructionexercise is expected to be completed in January 2006. (6 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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5 You are an audit manager in Dedza, a firm of Chartered Certified Accountants. Recently, you have been assignedspecific responsibility for undertaking annual reviews of existing clients. The following situations have arisen inconnection with three client companies:(a) Dedza was appointed auditor and tax advisor to Kora Co, a limited liability company, last year and has recentlyissued an unmodified opinion on the financial statements for the year ended 30 June 2005. To your surprise,the tax authority has just launched an investigation into the affairs of Kora on suspicion of underdeclaring income.(7 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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3 You are the manager responsible for the audit of Keffler Co, a private limited company engaged in the manufacture ofplastic products. The draft financial statements for the year ended 31 March 2006 show revenue of $47·4 million(2005 – $43·9 million), profit before taxation of $2 million (2005 – $2·4 million) and total assets of $33·8 million(2005 – $25·7 million).The following issues arising during the final audit have been noted on a schedule of points for your attention:(a) In April 2005, Keffler bought the right to use a landfill site for a period of 15 years for $1·1 million. Kefflerexpects that the amount of waste that it will need to dump will increase annually and that the site will becompletely filled after just ten years. Keffler has charged the following amounts to the income statement for theyear to 31 March 2006:– $20,000 licence amortisation calculated on a sum-of-digits basis to increase the charge over the useful lifeof the site; and– $100,000 annual provision for restoring the land in 15 years’ time. (9 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) 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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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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3 You are the manager responsible for the audit of Seymour Co. The company offers information, proprietary foods andmedical innovations designed to improve the quality of life. (Proprietary foods are marketed under and protected byregistered names.) The draft consolidated financial statements for the year ended 30 September 2006 show revenueof $74·4 million (2005 – $69·2 million), profit before taxation of $13·2 million (2005 – $15·8 million) and totalassets of $53·3 million (2005 – $40·5 million).The following issues arising during the final audit have been noted on a schedule of points for your attention:(a) In 2001, Seymour had been awarded a 20-year patent on a new drug, Tournose, that was also approved forfood use. The drug had been developed at a cost of $4 million which is being amortised over the life of thepatent. The patent cost $11,600. In September 2006 a competitor announced the successful completion ofpreliminary trials on an alternative drug with the same beneficial properties as Tournose. The alternative drug isexpected to be readily available in two years time. (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) You are an audit manager in a firm of Chartered Certified Accountants currently assigned to the audit of CleevesCo for the year ended 30 September 2006. During the year Cleeves acquired a 100% interest in Howard Co.Howard is material to Cleeves and audited by another firm, Parr Co. You have just received Parr’s draftauditor’s report for the year ended 30 September 2006. The wording is that of an unmodified report except forthe opinion paragraph which is as follows:Audit opinionAs more fully explained in notes 11 and 15 impairment losses on non-current assets have not beenrecognised in profit or loss as the directors are unable to quantify the amounts.In our opinion, provision should be made for these as required by International Accounting Standard 36(Impairment). If the provision had been so recognised the effect would have been to increase the loss beforeand after tax for the year and to reduce the value of tangible and intangible non-current assets. However,as the directors are unable to quantify the amounts we are unable to indicate the financial effect of suchomissions.In view of the failure to provide for the impairments referred to above, in our opinion the financial statementsdo not present fairly in all material respects the financial position of Howard Co as of 30 September 2006and of its loss and its cash flows for the year then ended in accordance with International Financial ReportingStandards.Your review of the prior year auditor’s report shows that the 2005 audit opinion was worded identically.Required:(i) Critically appraise the appropriateness of the audit opinion given by Parr Co on the financialstatements of Howard Co, for the years ended 30 September 2006 and 2005. (7 marks)
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(ii) Briefly explain the implications of Parr Co’s audit opinion for your audit opinion on the consolidatedfinancial statements of Cleeves Co for the year ended 30 September 2006. (3 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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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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(b) You are the audit manager of Petrie Co, a private company, that retails kitchen utensils. The draft financialstatements for the year ended 31 March 2007 show revenue $42·2 million (2006 – $41·8 million), profit beforetaxation of $1·8 million (2006 – $2·2 million) and total assets of $30·7 million (2006 – $23·4 million).You are currently reviewing two matters that have been left for your attention on Petrie’s audit working paper filefor the year ended 31 March 2007:(i) Petrie’s management board decided to revalue properties for the year ended 31 March 2007 that hadpreviously all been measured at depreciated cost. At the balance sheet date three properties had beenrevalued by a total of $1·7 million. Another nine properties have since been revalued by $5·4 million. Theremaining three properties are expected to be revalued later in 2007. (5 marks)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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4 You are an audit manager in Nate Co, a firm of Chartered Certified Accountants. You are reviewing three situations,which were recently discussed at the monthly audit managers’ meeting:(1) Nate Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to take theappointment and is currently carrying out client acceptance procedures. Fisher Co was recently incorporated byMarcellus Fisher, with its main trade being the retailing of wooden storage boxes.(2) Nate Co provides the audit service to CF Co, a national financial services organisation. Due to a number oferrors in the recording of cash deposits from new customers that have been discovered by CF Co’s internal auditteam, the directors of CF Co have requested that your firm carry out a review of the financial informationtechnology systems. It has come to your attention that while working on the audit planning of CF Co, Jin Sayed,one of the juniors on the audit team, who is a recent information technology graduate, spent three hoursproviding advice to the internal audit team about how to improve the system. As far as you know, this advice hasnot been used by the internal audit team.(3) LA Shots Co is a manufacturer of bottled drinks, and has been an audit client of Nate Co for five years. Twoaudit juniors attended the annual inventory count last Monday. They reported that Brenda Mangle, the newproduction manager of LA Shots Co, wanted the inventory count and audit procedures performed as quickly aspossible. As an incentive she offered the two juniors ten free bottles of ‘Super Juice’ from the end of theproduction line. Brenda also invited them to join the LA Shots Co office party, which commenced at the end ofthe inventory count. The inventory count and audit procedures were completed within two hours (the previousyear’s procedures lasted a full day), and the juniors then spent four hours at the office party.Required:(a) Define ‘money laundering’ and state the procedures specific to money laundering that should be consideredbefore, and on the acceptance of, the audit appointment of Fisher Co. (5 marks)
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5 You are the audit manager for three clients of Bertie Co, a firm of Chartered Certified Accountants. The financialyear end for each client is 30 September 2007.You are reviewing the audit senior’s proposed audit reports for two clients, Alpha Co and Deema Co.Alpha Co, a listed company, permanently closed several factories in May 2007, with all costs of closure finalised andpaid in August 2007. The factories all produced the same item, which contributed 10% of Alpha Co’s total revenuefor the year ended 30 September 2007 (2006 – 23%). The closure has been discussed accurately and fully in thechairman’s statement and Directors’ Report. However, the closure is not mentioned in the notes to the financialstatements, nor separately disclosed on the financial statements.The audit senior has proposed an unmodified audit opinion for Alpha Co as the matter has been fully addressed inthe chairman’s statement and Directors’ Report.In October 2007 a legal claim was filed against Deema Co, a retailer of toys. The claim is from a customer who slippedon a greasy step outside one of the retail outlets. The matter has been fully disclosed as a material contingent liabilityin the notes to the financial statements, and audit working papers provide sufficient evidence that no provision isnecessary as Deema Co’s lawyers have stated in writing that the likelihood of the claim succeeding is only possible.The amount of the claim is fixed and is adequately covered by cash resources.The audit senior proposes that the audit opinion for Deema Co should not be qualified, but that an emphasis of matterparagraph should be included after the audit opinion to highlight the situation.Hugh Co was incorporated in October 2006, using a bank loan for finance. Revenue for the first year of trading is$750,000, and there are hopes of rapid growth in the next few years. The business retails luxury hand made woodentoys, currently in a single retail outlet. The two directors (who also own all of the shares in Hugh Co) are aware thatdue to the small size of the company, the financial statements do not have to be subject to annual external audit, butthey are unsure whether there would be any benefit in a voluntary audit of the first year financial statements. Thedirectors are also aware that a review of the financial statements could be performed as an alternative to a full audit.Hugh Co currently employs a part-time, part-qualified accountant, Monty Parkes, who has prepared a year endbalance sheet and income statement, and who produces summary management accounts every three months.Required:(a) Evaluate whether the audit senior’s proposed audit report is appropriate, and where you disagree with theproposed report, recommend the amendment necessary to the audit report of:(i) Alpha Co; (6 marks)
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(b) You are the manager responsible for the audit of Poppy Co, a manufacturing company with a year ended31 October 2008. In the last year, several investment properties have been purchased to utilise surplus fundsand to provide rental income. The properties have been revalued at the year end in accordance with IAS 40Investment Property, they are recognised on the statement of financial position at a fair value of $8 million, andthe total assets of Poppy Co are $160 million at 31 October 2008. An external valuer has been used to providethe fair value for each property.Required:(i) Recommend the enquiries to be made in respect of the external valuer, before placing any reliance on theirwork, and explain the reason for the enquiries; (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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4 You are an audit manager in Smith Co, a firm of Chartered Certified Accountants. You have recently been maderesponsible for reviewing invoices raised to clients and for monitoring your firm’s credit control procedures. Severalmatters came to light during your most recent review of client invoice files:Norman Co, a large private company, has not paid an invoice from Smith Co dated 5 June 2007 for work in respectof the financial statement audit for the year ended 28 February 2007. A file note dated 30 November 2007 statesthat Norman Co is suffering poor cash flows and is unable to pay the balance. This is the only piece of informationin the file you are reviewing relating to the invoice. You are aware that the final audit work for the year ended28 February 2008, which has not yet been invoiced, is nearly complete and the audit report is due to be issuedimminently.Wallace Co, a private company whose business is the manufacture of industrial machinery, has paid all invoicesrelating to the recently completed audit planning for the year ended 31 May 2008. However, in the invoice file younotice an invoice received by your firm from Wallace Co. The invoice is addressed to Valerie Hobson, the managerresponsible for the audit of Wallace Co. The invoice relates to the rental of an area in Wallace Co’s empty warehouse,with the following comment handwritten on the invoice: ‘rental space being used for storage of Ms Hobson’sspeedboat for six months – she is our auditor, so only charge a nominal sum of $100’. When asked about the invoice,Valerie Hobson said that the invoice should have been sent to her private address. You are aware that Wallace Cosometimes uses the empty warehouse for rental income, though this is not the main trading income of the company.In the ‘miscellaneous invoices raised’ file, an invoice dated last week has been raised to Software Supply Co, not aclient of your firm. The comment box on the invoice contains the note ‘referral fee for recommending Software SupplyCo to several audit clients regarding the supply of bespoke accounting software’.Required:Identify and discuss the ethical and other professional issues raised by the invoice file review, and recommendwhat action, if any, Smith Co should now take in respect of:(a) Norman Co; (8 marks)
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The finance director of Blod Co, Uma Thorton, has requested that your firm type the financial statements in the formto be presented to shareholders at the forthcoming company general meeting. Uma has also commented that theprevious auditors did not use a liability disclaimer in their audit report, and would like more information about the useof liability disclaimer paragraphs.Required:(b) Discuss the ethical issues raised by the request for your firm to type the financial statements of Blod Co.(3 marks)
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You are an audit manager at Rockwell Co, a firm of Chartered Certified Accountants. You are responsible for the audit of the Hopper Group, a listed audit client which supplies ingredients to the food and beverage industry worldwide.The audit work for the year ended 30 June 2015 is nearly complete, and you are reviewing the draft audit report which has been prepared by the audit senior. During the year the Hopper Group purchased a new subsidiary company, Seurat Sweeteners Co, which has expertise in the research and design of sugar alternatives. The draft financial statements of the Hopper Group for the year ended 30 June 2015 recognise profit before tax of $495 million (2014 – $462 million) and total assets of $4,617 million (2014: $4,751 million). An extract from the draft audit report is shown below:Basis of modified opinion (extract)In their calculation of goodwill on the acquisition of the new subsidiary, the directors have failed to recognise consideration which is contingent upon meeting certain development targets. The directors believe that it is unlikely that these targets will be met by the subsidiary company and, therefore, have not recorded the contingent consideration in the cost of the acquisition. They have disclosed this contingent liability fully in the notes to the financial statements. We do not feel that the directors’ treatment of the contingent consideration is correct and, therefore, do not believe that the criteria of the relevant standard have been met. If this is the case, it would be appropriate to adjust the goodwill balance in the statement of financial position.We believe that any required adjustment may materially affect the goodwill balance in the statement of financial position. Therefore, in our opinion, the financial statements do not give a true and fair view of the financial position of the Hopper Group and of the Hopper Group’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.Emphasis of Matter ParagraphWe draw attention to the note to the financial statements which describes the uncertainty relating to the contingent consideration described above. The note provides further information necessary to understand the potential implications of the contingency.Required:(a) Critically appraise the draft audit report of the Hopper Group for the year ended 30 June 2015, prepared by the audit senior.Note: You are NOT required to re-draft the extracts from the audit report. (10 marks)(b) The audit of the new subsidiary, Seurat Sweeteners Co, was performed by a different firm of auditors, Fish Associates. During your review of the communication from Fish Associates, you note that they were unable to obtain sufficient appropriate evidence with regard to the breakdown of research expenses. The total of research costs expensed by Seurat Sweeteners Co during the year was $1·2 million. Fish Associates has issued a qualified audit opinion on the financial statements of Seurat Sweeteners Co due to this inability to obtain sufficient appropriate evidence.Required:Comment on the actions which Rockwell Co should take as the auditor of the Hopper Group, and the implications for the auditor’s report on the Hopper Group financial statements. (6 marks)(c) Discuss the quality control procedures which should be carried out by Rockwell Co prior to the audit report on the Hopper Group being issued. (4 marks)
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You are the audit manager of Chestnut Co and are reviewing the key issues identified in the files of two audit clients.Palm Industries Co (Palm)Palm’s year end was 31 March 2015 and the draft financial statements show revenue of $28·2 million, receivables of $5·6 million and profit before tax of $4·8 million. The fieldwork stage for this audit has been completed.A customer of Palm owed an amount of $350,000 at the year end. Testing of receivables in April highlighted that no amounts had been paid to Palm from this customer as they were disputing the quality of certain goods received from Palm. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance.Ash Trading Co (Ash)Ash is a new client of Chestnut Co, its year end was 31 January 2015 and the firm was only appointed auditors in February 2015, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing.The inventory count at Ash’s warehouse was undertaken on 31 January 2015 and was overseen by the company’s internal audit department. Neither Chestnut Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year end.The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and inventory of $510,000.Required:For each of the two issues:(i) Discuss the issue, including an assessment of whether it is material;(ii) Recommend ONE procedure the audit team should undertake to try to resolve the issue; and(iii) Describe the impact on the audit report if the issue remains UNRESOLVED.Notes:1 The total marks will be split equally between each of the two issues.2 Audit report extracts are NOT required.
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