Jessica Davis Carnival Australia Ltd (CAL) Case - Accounting Assignment Help

Assignment Task

Jessica Davis Carnival Australia Ltd (CAL),

Question 1 Jessica Davis is considering investing in Carnival Australia Ltd (CAL), a large cruise ship company. Jessica has reviewed CAL's 2018 audited financial report, which shows a net profit of $500 000 and a net asset position of $2 million. The auditor's report is unmodified, stating that in the auditor's opinion the financial report gives a true and fair view of the entity's financial performance and financial position. As a result, Jessica is now confident about her proposed investment in CAL, as she believes that the auditor's report provides absolute assurance about the accuracy of the financial report, including the healthy profit and net asset figures, and there is no chance of the company going bankrupt. Further, while she is aware of the management frauds that have occurred in some companies in recent years, she is comforted by the fact that she believes that the unmodified auditor's report means that no fraud has occurred within CAL.Required: Advise Jessica as to whether her conclusions about CAL are reasonable based on the audited financial report. Provide reasons for your opinion.ANSWER: ** Answer box will enlarge as you typeQuestion 2 (7 marks)You are the audit partner assigned to the audit of La Trobe Financials Ltd. You issued an unmodified auditor's report for the year ended 30 June 2018, indicating that the financial report gave a true and fair view. In December 2018, four employees of La Trobe Financials were charged with systematically and deliberately entering fictitious transactions and embezzling about $20 million. Your firm has been notified by La Trobe Financials solicitors that it is taking legal action against you over the audit for the year ended 30 June 2018. They claim that you and your audit team were negligent in conducting the audit, by failing to identify the fraudulent activities of the employees of La Trobe FinancialsRequired: (a) Detail the legislative actions that have been taken to reduce the extent of an auditor's liability. Explain why these reforms were introduced. ANSWER: (b) What is the major issue to be considered in determining whether La Trobe Financials was guilty of contributory negligence? ANSWER: Question 3 (7 marks)Evidence comes in various types and has different degrees of reliability. Below are some pairs of various types of evidence:(a) A bank confirmation versus observation of the segregation of duties between cash receipts and recording payment in the accounts receivable subsidiary ledger.(b) An auditor's recalculation of depreciation versus examination of raw material requisitions.(c) A bank statement included in the client's records versus the client's shipping documents.Required: For each pair, indicate which type of evidence is more reliable. Justify your choices.ANSWER: Question 4 (7 marks)Assume that you are responsible for preparing an audit plan in each of the following three independent situations:a) Management of your client Uttara Complex Ltd informs you that during the year the internal auditors discovered that a substantial amount of inventory had disappeared from one of its small branches. A number of local managers have subsequently resigned, although there were no prosecutions. The losses amounted to 3 per cent of the company's operating profit.b) A new competitor of your client Phoenix Ltd entered the market two months before balance date, and since that time, selling prices have fallen significantly. Your enquiries have revealed that the industry expects heavy discounting to continue for the whole of next year.c) Your client Jason Builder Ltd established an internal audit department in the second quarter of the year, consisting of four staff. The chief internal auditor is a former Big Four audit manager with 15 years' experience in the profession. He reports directly to the managing director, and he has no internal audit experience. Since joining the firm he has spent most of his time examining the internal control systems of the company. He is assisted by two new graduates and another staff member who has two years' internal audit experience and is presently in her third year of a part-time commerce degree.Required: How would the information provided in each case affect your audit strategy? Provide a brief explanation for each situation. ANSWER: Question 5 (11 marks)While working on the audit of Casablanca Ltd, you are involved in a review of control activities in the cash disbursement area. As part of your review, you have noted the following procedures:1. All payments prepared by the clerk include a pre-numbered bank transfer requisition.2. The bank transfer requisition requires the clerk to confirm that they have performed the following procedures for each payment:• checked the additions and prices on the invoice• confirmed the details on the invoice have been matched to a delivery note by the warehousing department• verified a valid purchase order exists for the goods.3. The clerk forwards the bank transfer requisition together with any supporting documentation (invoice and any other relevant correspondence) to the CFO for approval.Required: For each of the three controls identified above:(a) Describe the purpose of the control—what is the control designed to prevent or detect? (3 marks)ANSWER: (b) Identify the account(s) and assertion(s) that this control will have an effect on in the financial report. (5 marks)ANSWER: (c) Give three example of a procedure that could be used to test the control (3 marks)ANSWER: 

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