题目内容
Required:
(a) Identify and explain TWO factors which would indicate that an engagement letter for an existing audit client should be revised. (2 marks)
(b) List SIX matters which should be included within an audit engagement letter. (3 marks)
(c) Your audit firm has just won a new audit client, Milky Way Technologies Co (Milky Way), and you have been asked by the audit engagement partner to gain an understanding about the new client as part of the planning process.
Required:
Identify FIVE sources of information relevant to gaining an understanding of Milky Way Technologies Co and describe how this information will be used by the auditor. (5 marks)
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Section A暂缺
Section B – ALL SIX questions are compulsory and MUST be attempted
You are an audit manager of Pink Partners & Co (Pink) and are planning the audit of Golden Finance Co (Golden), a banking institution which provides a range of financial services including loans. Your firm has audited Golden for four years and the company’s year end is 30 September 2015.
At the end of August, Golden’s financial controller left and the new replacement is not due to start until approximately two months after the year end. The finance director, who is the sister-in-law of the audit engagement partner, has asked if a member of the audit team can be seconded to Golden for three months to act as the temporary financial controller.
You are aware that a number of the audit team members currently bank with Golden and two team members have significant loans owing to the company.
Pink’s taxation department also provides services to Golden. They have been approached by Golden to represent them in negotiations to resolve some outstanding issues with the taxation authorities, for which the fees quoted are substantial.
The finance director has informed the audit engagement partner that when the audit is complete, she would like the whole team to attend an evening watching the national football team play a match followed by a luxury meal.
Required:
Using the information above:
(i) Identify and explain FIVE ethical threats which may affect the independence of Pink Partners & Co’s audit of Golden Finance Co; and
(ii) For each threat, explain how it might be reduced to an acceptable level.
Note: The total marks will be split equally between each part.
(a) On 1 January 2015, Palistar acquired 75% of Stretcher’s equity shares by means of an immediate share exchange of two shares in Palistar for five shares in Stretcher. The fair value of Palistar and Stretcher’s shares on 1 January 2015 were $4·00 and $3·00 respectively. In addition to the share exchange, Palistar will make a cash payment of $1·32 per acquired share, deferred until 1 January 2016. Palistar has not recorded any of the consideration for Stretcher in its financial statements. Palistar’s cost of capital is 10% per annum.
The summarised statements of financial position of the two companies as at 30 June 2015 are:
The following information is relevant:
(i) Stretcher’s business is seasonal and 60% of its annual profit is made in the period 1 January to 30 June each year.
(ii) At the date of acquisition, the fair value of Stretcher’s net assets was equal to their carrying amounts with the following exceptions:
An item of plant had a fair value of $2 million below its carrying value. At the date of acquisition it had a remaining life of two years.
The fair value of Stretcher’s investments was $7 million (see also note (v)).
Stretcher owned the rights to a popular mobile (cell) phone game. At the date of acquisition, a specialist valuer estimated that the rights were worth $12 million and had an estimated remaining life of five years.
(iii) Following an impairment review, consolidated goodwill is to be written down by $3 million as at 30 June 2015.
(iv) Palistar sells goods to Stretcher at cost plus 30%. Stretcher had $1·8 million of goods in its inventory at 30 June 2015 which had been supplied by Palistar. In addition, on 28 June 2015, Palistar processed the sale of $800,000 of goods to Stretcher, which Stretcher did not account for until their receipt on 2 July 2015. The in-transit reconciliation should be achieved by assuming the transaction had been recorded in the books of Stretcher before the year end. At 30 June 2015, Palistar had a trade receivable balance of $2·4 million due from Stretcher which differed to the equivalent balance in Stretcher’s books due to the sale made on 28 June 2015.
(v) At 30 June 2015, the fair values of the financial asset equity investments of Palistar and Stretcher were $13·2 million and $7·9 million respectively.
(vi) Palistar’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Stretcher’s share price at that date is representative of the fair value of the shares held by the non-controlling interest.
Required:
Prepare the consolidated statement of financial position for Palistar as at 30 June 2015. (25 marks)
(b) For many years, Dilemma has owned 35% of the voting shares and held a seat on the board of Myno which has given Dilemma significant influence over Myno. The other shares (65%) in Myno were held by many other shareholders who all owned less than 10% of the share capital. On this basis, Dilemma considered Myno to be an associate and has used equity accounting to account for its investment.
In March 2015, Agresso made an offer to buy all of the shares of Myno. The offer was supported by the majority of Myno’s directors. Dilemma did not accept the offer and held on to its shares in Myno.
On 1 April 2015, Agresso announced that it had acquired the other 65% of the share capital of Myno and immediately convened a board meeting at which three of the previous directors of Myno were replaced, including the seat held by Dilemma.
Required:
Explain how the investment in Myno should be treated in the consolidated statement of profit or loss of Dilemma for the year ended 30 June 2015 and the consolidated statement of financial position at 30 June 2015. (5 marks)
Xpand is a public company which has grown in recent years by acquiring established businesses. The following financial statements for two potential target companies are shown below. They operate in the same industry sector and Xpand believes their shareholders would be receptive to a takeover. An indicative price for 100% acquisition of the companies is $12 million each.
Statements of profit or loss for the year ended 30 September 2015
Required:
(a) Using the above information, assess the relative performance and financial position of Kandid and Kovert for the year ended 30 September 2015 in order to assist the directors of Xpand to make an acquisition decision. (11 marks)
(b) Describe what further information may be useful to Xpand when making an acquisition decision. (4 marks)
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