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Assignment Task:

QUESTION 1 
You are an audit senior assigned to the Craft World Limited (Craft World) 30 June 20X3 audit engagement. Craft World operates its business from a large warehouse, selling fabrics, paper, wool and other goods to the general public. You have just completed audit testing of accrued expenses. The following is an extract from the relevant audit work papers: 
Overall materiality for the engagement is $100,000, performance materiality is $70,000, and misstatements of $5,000 or less are clearly trivial. Accruals is considered a low risk balance, and includes items such as insurance premiums, utilities and payroll expenses. All accruals selected for testing were found to be correctly recorded except for electricity, which was omitted from the accruals listing. By reference to an electricity invoice received post year end, but which relates to electricity supplied pre year end, you have determined that electricity of $9,000 should have been accrued at year end. 

A.Record the misstatement on the summary of misstatements. 
B.Increase perform substantive the risk of material analytical misstatement procedure. in accruals and 
C.Extend substantive testing on electricity expense. 
D. Ignore the error as it is immaterial. 

QUESTION 2 
Abacus Chartered Accountants (ACA) is in the process of nalising the audit of BallPark Limited (BallPark) 30 June 20X3 nancial statements. ACA has set an overall materiality level of $50,000 and a ‘clearly trivial’ amount of $500 for this audit. All audit work is completed and the only misstatements identi ed are as follows: 
i. During inventory testing, ACA found that some of BallPark's 
inventory valued at $45,000, had water damage due to a storm. The inventory can no longer be sold. The total value of inventory at year end, which also includes the inventory that had water damage, is $950,000. 
ii. As part of the audit testing of accounts payable, ACA found that BallPark had incorrectly entered a supplier invoice as $2,200 instead of $1,200. The total value of accounts payable at year end, which also includes this error, is $500,000. 
If BallPark management refuse to correct these two misstatements, are the BallPark nancial statements materially misstated? 
No, because misstatement (i) and (ii) are individually A.immaterial when compared to the value in the nancial 
statements at year end. 
B.Yes, because misstatement (i) is individually material. 
C.No, materiality. because aggregate misstatements of $44,000 are below 
D. No, materiality. 
because aggregate misstatements of $46,000 are below 

QUESTION 3 
Sonali is the audit manager reviewing work papers for the 30 June 20X3 audit of DSYS Limited (DSYS). DSYS is a manufacturer of gaming devices, systems and components with operations across the country in both capital and regional cities. Sonali is reviewing the work papers that describe the audit work performed on two accounts and assertions considered to be signi cant risks for the DSYS engagement: 
Account Relevant 
Description of audit work performed assertions 
Performed a substantive analytical procedure. The results were in line with our expectations and therefore no further work was undertaken. 
Based on the audit work performed, for which of the accounts (if any) has the auditor obtained su cient appropriate audit evidence? 
A.Property 
B.Both accounts 
C.Sales 
D. Neither account 

QUESTION 4 
Big City Accountants (Big City) is a large accounting rm in Sydney that will be auditing the 30 June 20X3 consolidated nancial statements of Farmer Joe’s Group (FJG), an entity that manufactures and distributes farming equipment. FJG has recently acquired Erip Limited (Erip), a small business based in a rural town outside Rockhampton, Queensland. This is the most remote of any of the entities in FJG which, up until January 20X3, consisted of entities in, or close to, Sydney. Stacey, the audit partner at Big City, does not believe it is cost- e ective to send an audit team to rural Queensland to conduct the audit of Erip. Stacey considers whether to engage an auditor who is based in Rockhampton (the Rockhampton auditor), or to not audit Erip at all and perform analytical procedures at group level only. Stacey knows that Erip contributes less than 10% of FJGs revenue and expenses (which is less than 5% of FJG’s net pro t), has very little stock on hand, and has only a few employees. However, she is concerned about Erip’s substantial rural landholdings and is aware that market values for rural properties can be di cult to determine. The value of Erip’s rural landholdings is material to FJG. What advice would you give to Stacey about the audit of Erip? 

QUESTION 5 
RubberStamp Auditors (RA) has been appointed the auditor of Red Lady Limited (Red Lady) nancial statements for the year ended 30 June 20X3. RA is due to issue the auditor’s report to Red Lady on 31 August 20X3. The following material events occurred after the balance date: Event 1: On 1 August 20X3, Red Lady announced a merger was going to take place with Red Lady’s major competitor, Blues Limited. Event 2: On 23 August 20X3, a legal case involving Red Lady settled, with the result that Red Lady have to pay costs of $700,000 to a group of employees injured in its factory in April 20X3. A contingent liability note was only included in the 30 June 20X3 nancial statements regarding this matter. When RA discussed these events with Red Lady’s management, management advised that no changes will be made to the 30 June 20X3 nancial statements to re ect the above events as they believe they have no impact on the nancial statements. Would Red Lady’s 30 June 20X3 nancial statements be materially misstated? 

QUESTION 6 
Maria is the audit assistant on the DMBD Limited (DMBD) nancial statements audit for the year ending 30 June 20X3. She is aware that the auditor has certain responsibilities in relation to management’s use of the going concern basis of accounting, but is unsure of her understanding. Maria has asked you for clari cation on the following items: 
i. The auditor is required to obtain a management 
representation letter to con rm management’s assessment of the appropriateness of the use of the going concern basis of accounting. In the absence of any evidence to the contrary, the auditor may rely on the representation letter as the only audit evidence supporting the appropriateness of the use of the going concern basis of accounting to prepare the nancial statements. 
ii. The auditor is required to undertake audit procedures to Click Save obtain and Submit su cient to save appropriate and submit. audit Click evidence Save All in relation Answers to 
iii. The auditor may determine that the going concern basis of accounting is appropriate even when there is a material uncertainty which has been adequately disclosed in the financial statements. 
Which items are correct in accordance with ISA 570 (Revised)? 
A.i and iii. 
B.ii and iii. 
C.i and ii. 
D. i, ii and iii. 

QUESTION 7 
Eye-Eye Limited (Eye-Eye) owns 10 expensive and specialised lasers used by ophthalmologists when performing eye surgery. The lasers are leased on a long-term basis to various hospitals for a xed monthly cost regardless of use. The machines are all about two years old and have an expected life of 10 years. Eye-Eye carries out no other business activities, and expenses consist primarily of wages and 
nancing expenses incurred in purchasing the lasers. Audit testing is now nearing completion and no misstatements were noted. Jeremy, an audit senior, has just completed analytical procedures on the nal draft nancial statements. The following notes are extracts from his work papers: 
Final analytical procedures consisted of performing simple comparison from this year to last year’s results. Minimal variances were noted. No further work is considered necessary. 
Which one of the following statements is true in relation to the nal analytical procedures performed by Jeremy? 
A.The discussed procedures with management. 
are not complete until the results are 
B.The obtained. 
results of the procedures can corroborate other evidence 
C.The of the procedures business. were not necessary due to the simple nature 
D. The of a lack material of change misstatement. 

QUESTION 8 
You are an audit assistant working at Stanley Chartered Accountants (SCA) and are assigned to the audit of the Rilax nancial statements for the year ending 30 June 20X3. Rilax manufactures and sells Click outdoor but Save this and is furniture. your Submit rst Rilax year to save has on and the been Rilax submit. an audit audit. 
Which of the following is not required to be performed? 
A.Update your understanding of internal controls at Rilax. 
B.Ensure the auditor’s report speci cally refers to the 
comparative gures. 
C.Agree nancial comparative statements. information to the audited prior year 
D. Compare current year. 

QUESTION 9 
You are an audit senior working at N&M Partners (N&M). N&M are the auditors of Dia Limited (Dia), a listed entity that mines for diamonds. Due to the current economic downturn, demand for Dia’s products has declined signi cantly and sales revenue and net pro t has declined during the past few years. You have obtained su cient appropriate audit evidence to conclude that the 30 June 20X3 
nancial statements are materially correct and N&M will be signing the auditor’s report shortly. You are now reviewing Dia’s draft chairman’s report which will be included in the current year’s annual report. The draft chairman’s report includes the statement, ‘After some tough times in the past few years, we have seen a strong improvement, with positive growth in demand for our diamonds during the 30 June 20X3 nancial year.’ You believe that the comment is inconsistent with the nancial statements and your understanding of the entity. Therefore, you request the directors to change or remove it. The Dia directors refuse to follow your request and insist that the annual report will be published with the comment included. Which one of the following statements is true? 
 

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