BUACC3741 : A Public Accountant is Engaged in the Examination of the Financial Statements - Accounting and Finance Assignment Help

Assignment Task:

Task:

Question 1 (9 + 6 = 15 marks)The following are independent situations for which you will recommend an appropriate audit report:
A public accountant is engaged in the examination of the financial statements of a large manufacturing company with branch offices in many widely separated cities. The public accountant wasn’t able to count the substantial undeposited cash receipts at the close of business on the last day of the financial year at all branch offices. As an alternative to this auditing procedure used to verify the accurate cutoff of cash receipts, the public accountant observed that deposits in transit as shown on the year-end bank reconciliation appeared as credits on the bank statement on the first business day of the new year. The public accountant was satisfied as to the cutoff of cash receipts by the use of the alternative procedure.
On 2 January 20X0, Retail Auto Parts Company Ltd received a notice from its primary supplier that, effective immediately, all wholesale prices would be increased by 10%. On the basis of the notice, Retail Auto Parts revalued its 31 December 20X9 inventory to reflect the higher costs. The inventory constituted a material proportion of total assets; however, the effect of the revaluation was material to current assets but not to total assets or profit. The increase in valuation is adequately disclosed in the footnotes.
During the course of the examination of the financial statements of a company, an auditor is refused permission to inspect the minute books. The company secretary instead offers to give the auditor a certified copy of all resolutions and actions relating to accounting matters.
Required:
Assume you are the audit partner on the engagement. What type of audit reports are you going to issue in the above situations? Explain. (3 + 3 + 3 = 9 marks)
What are the purposes of the opinion section in the auditor’s report? Identify the most important information included in the opinion section. (6 marks)
1163955-31242000Question 2 (12 marks)
Adios Ltd is a retailer with branches across Australia.
This is the first year of your audit engagement at this company. You have found that at Adios: bonuses based on sales are a significant component of the compensation package for individual product sales managers. Sales managers who do not meet sales targets three quarters in a row are often replaced.
You have also found that one of its major suppliers is managed by the wife of one of Adios’ directors.
This has been a not been a good year for the retail industry as it has experienced some economic difficulties.
The draft financial information for Adios Ltd for the year to 30 June 20X1 is as follows:
30 June 20X1 30 June 20X0
Draft Actual
$000s $000s
Revenue 10 534 8 244
Cost of sales (5 038) (4 580)
Gross profit 5 496 3 664
Operating expenses (3 436) (1 916)
Profit/(loss) before interest and tax 2 060 1 748
Cash -- 1 054
Accounts receivables 1 862 1 174
Inventory 962 732
Bank overdraft 412 --
Accounts payables 732 550
Required:
Based on the above information, discuss the issues that you will consider in your audit planning. Also, identify audit risks and outline how the auditor should respond to these risks. Show all supporting calculations. (12 marks)
Question 3 (15 marks)
George Brown is a Chartered Accountant who has been the partner in charge of the audit of Mario Manufacturing for the last 5 years.
George has always enjoyed a close relationship with the company’s CEO Bill Green. His firm has provided regular management consulting services to the client.
In the past, George’s firm has asked him to consider rotating a different audit team on the engagement, but this has been resisted by both George and Bill Green.
Last year, on George’s recommendation, George’s firm installed a new computer system for the client. He also made some contribution as a member of the company’s audit committee.
This year, the senior in charge of the audit, Phil Warren, was new on the job. This was his first involvement in an audit in the industry in which Mario operates.
This year, the interim tests of internal controls took somewhat longer than expected because of the new accounting system to computerise inventories. In addition, there was no time to conduct the usual ratio analysis in planning the audit.
At year-end, Warren assigned responsibility for inventory to an assistant who also had not been on the audit before. Six months later, George was informed that the company was in serious financial trouble. Subsequent investigation revealed that the inventory had been significantly overstated.
Required:
If George Brown’s firm is sued by the shareholders and the creditors, what is the likely outcome? Explain the issues. You may refer to any relevant case law in your answer. (15 marks)
Question 4 (7 + 6 + 6 = 19 marks)
Part a:
The following are examples of audit procedures for obtaining audit evidence:
Send debtor’s confirmation letters to a number of the client’s customers.
Recalculate depreciation charges.
Calculate gross profit rates for the current year and preceding year.
Discuss the potential obsolescence of inventory with the management.
Examine registration certificates for motor vehicles purchased during the year.
Use the computer to scan a file to determine that all documents in a numbered series have been accounted for.
Observe the year-end inventory count.
Required
Describe the type of evidence obtained by each procedure, and indicate the assertion or assertions to which it relates. (7 marks)
Part b:
An auditor may perform the following three types of substantive procedures: (a) tests of details of transactions; (b) tests of details of balances; and (c) analytical procedures. Below are specific audit procedures that fall within one of these categories:
Reconcile supplier statements at the year-end with balances in the purchase ledger.
Agree a sample of sales invoices to goods despatch records held in the inventory system.
Review post year-end receipts from customers to establish the extent of unpaid debts.
Calculate gross profit ratios for each branch of a chain of supermarkets and compare month by month and prior year.
Obtain schedule of asset disposals in the period and agree to supporting sale documents.
Attend the factory on the final day of the year to review work in progress.
Required
For each procedure, explain which of the three types it belongs to. (6 marks)
Question 4 (Continued)
Part c:
You are the audit manager in charge of auditing the accounts of XYZ Ltd. The pre-audited balance of accounts receivable for XYZ Ltd at 30 June 2019 is $955,000. The audited balance of accounts receivable at 30 June 2018 was 605,000.
Required:
For which assertion(s) related to accounts receivable is the risk of material misstatement likely to be greatest. Suggest substantive procedures to verify the assertion (s) you identified. (6 marks)
Question 5 (6 + 6 + 6 + 6 + 4 = 28 marks)
Part a:
Identify three different types of external confirmations. Explain why each is a useful source of evidence referring to the financial statement assertion it supports. (6 marks)
Part b:
Briefly discuss the different methods of selecting a representative sample. (6 marks)
Part c:
Why do auditors want to rely on internal controls wherever possible? (6 marks)
Part d:
Suggest one test of control and one substantive test of transactions that the auditor can use to verify this sales transaction-related audit objective: Recorded sales are stated at the proper amounts. (6 marks)
Part e:
Why is it necessary to have independent audits? Explain your reasons. (4 marks)
Question 6 (8 marks)Wang Ltd sells motor vehicle spare parts to retail customers. The company owns 25 shops.
The company has recently implemented a new computerised wages system. Employees work a standard eight-hour day. Hours are recorded using a magnetic card system; when each employee arrives for work, they hold their card close to the card reader and the reader recognises the magnetic information on the card identifying the employee as being ‘at work’. When the employee leaves work at the end of the day the process is reversed, showing that the employee has left work.
Hours worked are calculated each week by the computer system using the magnetic card information. Overtime is calculated as any excess over the standard hours worked. Any overtime over 10% of standard hours is sent on a computer- generated report by email to the financial accountant. If necessary, the accountant overrides overtime payments if the hours worked are incorrect.
Statutory deductions and net pay are also computer calculated with payments being made directly into the employee's bank account. The only other manual check is the financial accountant authorising the net pay from Wang’s bank account, having reviewed the list of wages to be paid.
Required:
Using examples from the above, explain the benefits and costs that the auditor uses Computer-Assisted Audit Techniques to obtain sufficient appropriate audit evidence. (8 marks)
END OF EXAMINATION
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