ACCA/CAT - F8 - 查题吧

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问答题

Sunflower Stores Co (Sunflower) operates 25 food supermarkets. The company’s year end is 31 December 2012. The audit manager and partner recently attended a planning meeting with the finance director and have provided you with the planning notes below.<br>You are the audit senior, and this is your first year on this audit. In order to familiarise yourself with Sunflower, the audit manager has asked you to undertake some research in order to gain an understanding of Sunflower, so that you are able to assist in the planning process. He has then asked that you identify relevant audit risks from the notes below and also consider how the team should respond to these risks.<br>Sunflower has spent $1·6 million in refurbishing all of its supermarkets; as part of this refurbishment programme their central warehouse has been extended and a smaller warehouse, which was only occasionally used, has been disposed of at a profit. In order to finance this refurbishment, a sum of $1·5 million was borrowed from the bank. This is due to be repaid over five years.<br>The company will be performing a year-end inventory count at the central warehouse as well as at all 25 supermarkets on 31 December. Inventory is valued at selling price less an average profit margin as the finance director believes that this is a close approximation to cost.<br>Prior to 2012, each of the supermarkets maintained their own financial records and submitted returns monthly to head office. During 2012 all accounting records have been centralised within head office. Therefore at the beginning of the year, each supermarket’s opening balances were transferred into head office’s accounting records. The increased workload at head office has led to some changes in the finance department and in November 2012 the financial controller left. His replacement will start in late December.<br>Required:<br>(a) List FIVE sources of information that would be of use in gaining an understanding of Sunflower Stores Co, and for each source describe what you would expect to obtain. (5 marks)<br>(b) Using the information provided, describe FIVE audit risks and explain the auditor’s response to each risk in planning the audit of Sunflower Stores Co. (10 marks)<br>(c) The finance director of Sunflower Stores Co is considering establishing an internal audit department. Required: Describe the factors the finance director should consider before establishing an internal audit department. (5 marks)

问答题

(a) Explain the three stages of an audit when analytical procedures can be used by the auditor. (3 marks)<br>You are the audit manager of Kiwi & Co and you have been provided with financial statements extracts and the following information about your client, Strawberry Kitchen Designs Co (Strawberry), who is a kitchen manufacturer. The company’s year end is 30 April 2012.<br>Strawberry has recently been experiencing trading difficulties, as its major customer who owes $0·6m to Strawberry has ceased trading, and it is unlikely any of this will be received. However the balance is included within the financial statements extracts below. The sales director has recently left Strawberry and has yet to be replaced.<br>The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecast as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing.<br>Due to its financial difficulties, Strawberry missed a loan repayment and, as a result of this breach in the loan covenants, the bank has asked that the loan of $4·8m be repaid in full within six months. The directors have decided that in order to conserve cash, no final dividend will be paid in 2012.<br>Financial statements extracts for year ended 30 April:<br>Required:<br>(b) Explain the potential indicators that Strawberry Kitchen Designs Co is not a going concern. (6 marks)<br>(c) Describe the audit procedures that you should perform. in assessing whether or not the company is a going concern. (6 marks)<br>(d) Having performed the going concern audit procedures, you have serious concerns in relation to the going concern status of Strawberry. The finance director has informed you that as the cash flow issues are short term he does not propose to make any amendments to the financial statements.<br>Required:<br>(i) State Kiwi & Co’s responsibility for reporting on going concern to the directors of Strawberry Kitchen Designs Co; and (2 marks)<br>(ii) If the directors refuse to amend the financial statements, describe the impact on the audit report. (3 marks)

问答题

(a) (i) Identify and explain FOUR financial statement assertions relevant to account balances at the year end; and<br>(ii) For each identified assertion, describe a substantive procedure relevant to the audit of year-end inventory. (8 marks)<br>(b) Pineapple Beach Hotel Co (Pineapple) operates a hotel providing accommodation, leisure facilities and restaurants. Its year end was 30 April 2012. You are the audit senior of Berry & Co and are currently preparing the audit programmes for the year end audit of Pineapple. You are reviewing the notes of last week’s meeting between the audit manager and finance director where two material issues were discussed.<br>Depreciation<br>Pineapple incurred significant capital expenditure during the year on updating the leisure facilities for the hotel. The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the straight-line method.<br>Food poisoning<br>Pineapple’s directors received correspondence in March from a group of customers who attended a wedding at the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are claiming substantial damages. Pineapple’s lawyers have received the claim and believe that the lawsuit against the company is unlikely to be successful.<br>Required:<br>Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above two issues.<br>Note: The total marks will be split equally between each issue. (8 marks)<br>(c) List and explain the purpose of FOUR items that should be included on every working paper prepared by the audit team. (4 marks)

问答题

(a) Explain the external auditors’ responsibilities in relation to the prevention and detection of fraud and error. (4 marks)<br>You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.<br>The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.<br>During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.<br>Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.<br>The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.<br>Required:<br>(b) (i) Explain SIX ethical threats which may affect the independence of Currant & Co’s audit of Orange Financials Co; and<br>(ii) For each threat explain how it might be reduced to an acceptable level. (12 marks)<br>(c) Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee and has asked for some advice in relation to this.<br>Required:<br>Explain the benefits to Orange of establishing an audit committee. (4 marks)

问答题

(a) ISA 300 Planning an Audit of Financial Statements provides guidance to assist auditors in planning an audit.<br>Required:<br>Explain the benefits of audit planning. (4 marks)<br>(b) ISA 530 Audit Sampling provides guidance on methods for selecting a sample of items for testing.<br>Required:<br>Identify and explain THREE methods of selecting a sample. (3 marks)<br>(c) Describe the three types of modified audit opinions. (3 marks)

问答题

Pear International Co (Pear) is a manufacturer of electrical equipment. It has factories across the country and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company’s year end is 30 September 2012. You are an audit supervisor of Apple & Co and are currently reviewing documentation of Pear’s internal control in preparation for the interim audit.<br>Pear’s website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed.<br>Goods are despatched via local couriers; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of goods. Pear has investigated these and found that, in each case, the sales order had been entered into the sales system correctly but was not forwarded to the despatch department for fulfilling.<br>Pear’s retail customers undergo credit checks prior to being accepted and credit limits are set accordingly by sales ledger clerks. These customers place their orders through one of the sales team, who decides on sales discount levels.<br>Raw materials used in the manufacturing process are purchased from a wide range of suppliers. As a result of staff changes in the purchase ledger department, supplier statement reconciliations are no longer performed. Additionally, changes to supplier details in the purchase ledger master file can be undertaken by purchase ledger clerks as well as supervisors.<br>In the past six months Pear has changed part of its manufacturing process and as a result some new equipment has been purchased, however, there are considerable levels of plant and equipment which are now surplus to requirement. Purchase requisitions for all new equipment have been authorised by production supervisors and little has been done to reduce the surplus of old equipment.<br>Required:<br>(a) In respect of the internal control of Pear International Co:<br>(i) Identify and explain FIVE deficiencies;<br>(ii) Recommend a control to address each of these deficiencies; and<br>(iii) Describe a test of control Apple & Co would perform. to assess if each of these controls is operating effectively. (15 marks)<br>(b) Describe substantive procedures you should perform. at the year end to confirm each of the following for plant and equipment:<br>(i) Additions; and<br>(ii) Disposals. (4 marks)<br>(c) Pear’s finance director has expressed an interest in Apple & Co performing other review engagements in addition to the external audit; however, he is unsure how much assurance would be gained via these engagements and how this differs to the assurance provided by an external audit.<br>Required:<br>Identify and explain the level of assurance provided by an external audit and other review engagements. (3 marks)<br>Pear’s directors are considering establishing an internal audit department next year, and the finance director has asked about the differences between internal audit and external audit and what impact, if any, establishing an internal audit department would have on future external audits performed by Apple & Co.<br>Required:<br>(d) Distinguish between internal audit and external audit. (4 marks)<br>(e) Explain the potential impact on the work performed by Apple & Co during the interim and final audits, if Pear International Co was to establish an internal audit department. (4 marks)

问答题

(a) Defi ne the going concern assumption. (2 marks)<br>Medimade Co is an established pharmaceutical company that has for many years generated 90% of its revenue through the sale of two specifi c cold and fl u remedies. Medimade has lately seen a real growth in the level of competition that it faces in its market and demand for its products has signifi cantly declined. To make matters worse, in the past the company has not invested suffi ciently in new product development and so has been trying to remedy this by recruiting suitably trained scientifi c staff, but this has proved more diffi cult than anticipated.<br>In addition to recruiting staff the company also needed to invest $2m in plant and machinery. The company wanted to borrow this sum but was unable to agree suitable terms with the bank; therefore it used its overdraft facility, which carried a higher interest rate. Consequently, some of Medimade’s suppliers have been paid much later than usual and hence some of them have withdrawn credit terms meaning the company must pay cash on delivery. As a result of the above the company’s overdraft balance has grown substantially.<br>The directors have produced a cash fl ow forecast and this shows a signifi cantly worsening position over the coming 12 months.<br>The directors have informed you that the bank overdraft facility is due for renewal next month, but they are confi dent that it will be renewed. They also strongly believe that the new products which are being developed will be ready to market soon and hence trading levels will improve and therefore that the company is a going concern. Therefore they do not intend to make any disclosures in the accounts regarding going concern.<br>Required:<br>(b) Identify any potential indicators that the company is not a going concern and describe why these could impact upon the ability of the company to continue trading on a going concern basis. (8 marks)<br>(c) Explain the audit procedures that the auditor of Medimade should perform. in assessing whether or not the company is a going concern. (6 marks)<br>(d) The auditors have been informed that Medimade’s bankers will not make a decision on the overdraft facility until after the audit report is completed. The directors have now agreed to include going concern disclosures.<br>Required:<br>Describe the impact on the audit report of Medimade if the auditor believes the company is a going concern but a material uncertainty exists. (4 marks)

问答题

(a) State the FIVE threats contained within ACCA’s Code of Ethics and Conduct and for each threat list ONE example of a circumstance that may create the threat. (5 marks)<br>(b) You are the audit manager of Jones & Co and you are planning the audit of LV Fones Co, which has been an audit client for four years and specialises in manufacturing luxury mobile phones.<br>During the planning stage of the audit you have obtained the following information. The employees of LV Fones Co are entitled to purchase mobile phones at a discount of 10%. The audit team has in previous years been offered the same level of staff discount.<br>During the year the fi nancial controller of LV Fones was ill and hence unable to work. The company had no spare staff able to fulfi l the role and hence a qualifi ed audit senior of Jones & Co was seconded to the client for three months. The audit partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income derived from LV Fones was boosted by this engagement and along with the audit and tax fee, now accounts for 16% of the fi rm’s total fees.<br>From a review of the correspondence fi les you note that the partner and the fi nance director have known each other socially for many years and in fact went on holiday together last summer with their families. As a result of this friendship the partner has not yet spoken to the client about the fee for last year’s audit, 20% of which is still outstanding.<br>Required:<br>(i) Explain the ethical threats which may affect the independence of Jones & Co’s audit of LV Fones Co; and (5 marks)<br>(ii) For each threat explain how it might be avoided. (5 marks)<br>(c) Describe the steps an audit fi rm should perform. prior to accepting a new audit engagement. (5 marks)

问答题

(a) (i) Defi ne a ‘test of control’ and a ‘substantive procedure’; (2 marks)<br>(ii) State ONE test of control and ONE substantive procedure in relation to sales invoicing. (2 marks)<br>(b) Shiny Happy Windows Co (SHW) is a window cleaning company. Customers’ windows are cleaned monthly, the window cleaner then posts a stamped addressed envelope for payment through the customer’s front door.<br>SHW has a large number of receivable balances and these customers pay by cheque or cash, which is received in the stamped addressed envelopes in the post. The following procedures are applied to the cash received cycle:<br>1. A junior clerk from the accounts department opens the post and if any cheques or cash have been sent, she records the receipts in the cash received log and then places all the monies into the locked small cash box.<br>2. The contents of the cash box are counted each day and every few days these sums are banked by which ever member of the fi nance team is available.<br>3. The cashier records the details of the cash received log into the cash receipts day book and also updates the sales ledger.<br>4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then fi les, if he misses a month then he catches this up in the following month’s reconciliation.<br>Required:<br>For the cash cycle of SHW:<br>(i) Identify and explain THREE defi ciencies in the system; (3 marks)<br>(ii) Suggest controls to address each of these defi ciencies; and (3 marks)<br>(iii) List tests of controls the auditor of SHW would perform. to assess if the controls are operating effectively. (3 marks)<br>(c) Describe substantive procedures an auditor would perform. in verifying a company’s bank balance. (7 marks)

问答题

(a) Auditors are frequently required to provide assurance for a range of non-audit engagements.<br>Required:<br>List and explain the elements of an assurance engagement. (5 marks)<br>(b) ISA 320 Materiality in Planning and Performing an Audit provides guidance on the concept of materiality in planning and performing an audit.<br>Required:<br>Defi ne materiality and determine how the level of materiality is assessed. (5 marks)

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