(c) Maxwell Co is audited by Lead & Co, a firm of Chartered Certified Accountants. Leo Sabat has enquired as towhether your firm would be prepared to conduct a joint audit in cooperation with Lead & Co, on the futurefinancial statements of Maxwell Co if t

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whether your firm would be prepared to conduct a joint audit in cooperation with Lead & Co, on the future

financial statements of Maxwell Co if the acquisition goes ahead. Leo Sabat thinks that this would enable your

firm to improve group audit efficiency, without losing the cumulative experience that Lead & Co has built up while

acting as auditor to Maxwell Co.

Required:

Define ‘joint audit’, and assess the advantages and disadvantages of the audit of Maxwell Co being conducted

on a ‘joint basis’. (7 marks)

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(b) As a newly-qualified Chartered Certified Accountant in Boleyn & Co, you have been assigned to assist the ethicspartner in developing ethical guidance for the firm. In particular, you have been asked to draft guidance on thefollowing frequently asked questions (‘FAQs’) that will be circulated to all staff through Boleyn & Co’s intranet:(i) What Information Technology services can we offer to audit clients? (5 marks)Required:For EACH of the three FAQs, explain the threats to objectivity that may arise and the safeguards that shouldbe available to manage them to an acceptable level.NOTE: The mark allocation is shown against each of the three questions.

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(b) Explain what effect the acquisition of Di Rollo Co will have on the planning of your audit of the consolidatedfinancial statements of Murray Co for the year ending 31 March 2008. (10 marks)

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1 Your client, Island Co, is a manufacturer of machinery used in the coal extraction industry. You are currently planningthe audit of the financial statements for the year ended 30 November 2007. The draft financial statements showrevenue of $125 million (2006 – $103 million), profit before tax of $5·6 million (2006 – $5·1 million) and totalassets of $95 million (2006 – $90 million). Your firm was appointed as auditor to Island Co for the first time in June2007.Island Co designs, constructs and installs machinery for five key customers. Payment is due in three instalments: 50%is due when the order is confirmed (stage one), 25% on delivery of the machinery (stage two), and 25% on successfulinstallation in the customer’s coal mine (stage three). Generally it takes six months from the order being finalised untilthe final installation.At 30 November, there is an amount outstanding of $2·85 million from Jacks Mine Co. The amount is a disputedstage three payment. Jacks Mine Co is refusing to pay until the machinery, which was installed in August 2007, isrunning at 100% efficiency.One customer, Sawyer Co, communicated in November 2007, via its lawyers with Island Co, claiming damages forinjuries suffered by a drilling machine operator whose arm was severely injured when a machine malfunctioned. KateShannon, the chief executive officer of Island Co, has told you that the claim is being ignored as it is generally knownthat Sawyer Co has a poor health and safety record, and thus the accident was their fault. Two orders which wereplaced by Sawyer Co in October 2007 have been cancelled.Work in progress is valued at $8·5 million at 30 November 2007. A physical inventory count was held on17 November 2007. The chief engineer estimated the stage of completion of each machine at that date. One of themajor components included in the coal extracting machinery is now being sourced from overseas. The new supplier,Locke Co, is located in Spain and invoices Island Co in euros. There is a trade payable of $1·5 million owing to LockeCo recorded within current liabilities.All machines are supplied carrying a one year warranty. A warranty provision is recognised on the balance sheet at$2·5 million (2006 – $2·4 million). Kate Shannon estimates the cost of repairing defective machinery reported bycustomers, and this estimate forms the basis of the provision.Kate Shannon owns 60% of the shares in Island Co. She also owns 55% of Pacific Co, which leases a head office toIsland Co. Kate is considering selling some of her shares in Island Co in late January 2008, and would like the auditto be finished by that time.Required:(a) Using the information provided, identify and explain the principal audit risks, and any other matters to beconsidered when planning the final audit for Island Co for the year ended 30 November 2007.Note: your answer should be presented in the format of briefing notes to be used at a planning meeting.Requirement (a) includes 2 professional marks. (13 marks)

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3 You are an audit manager in Webb & Co, a firm of Chartered Certified Accountants. Your audit client, Mulligan Co,designs and manufactures wooden tables and chairs. The business has expanded rapidly in the last two years, sincethe arrival of Patrick Tiler, an experienced sales and marketing manager.The directors want to secure a loan of $3 million in order to expand operations, following the design of a completelynew range of wooden garden furniture. The directors have approached LCT Bank for the loan. The bank’s lendingcriteria stipulate the following:‘Loan applications must be accompanied by a detailed business plan, including an analysis of how the finance willbe used. LCT Bank need to see that the finance requested is adequate for the proposed business purpose. Thebusiness plan must be supported by an assurance opinion on the adequacy of the requested finance.’The $3 million finance raised will be used as follows:$000Construction of new factory 1,250Purchase of new machinery 1,000Initial supply of timber raw material 250Advertising and marketing of new product 500Your firm has agreed to review the business plan and to provide an assurance opinion on the completeness of thefinance request. A meeting will be held tomorrow to discuss this assignment.Required:(a) Identify and explain the matters relating to the assurance assignment that should be discussed at the meetingwith Mulligan Co. (8 marks)

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4 You are an audit manager in Nate & Co, a firm of Chartered Certified Accountants. You are reviewing three situations,which were recently discussed at the monthly audit managers’ meeting:(1) Nate & Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to take theappointment and is currently carrying out client acceptance procedures. Fisher Co was recently incorporated byMarcellus Fisher, with its main trade being the retailing of wooden storage boxes.(2) Nate & Co provides the audit service to CF Co, a national financial services organisation. Due to a number oferrors in the recording of cash deposits from new customers that have been discovered by CF Co’s internal auditteam, the directors of CF Co have requested that your firm carry out a review of the financial informationtechnology systems. It has come to your attention that while working on the audit planning of CF Co, Jin Sayed,one of the juniors on the audit team, who is a recent information technology graduate, spent three hoursproviding advice to the internal audit team about how to improve the system. As far as you know, this advice hasnot been used by the internal audit team.(3) LA Shots Co is a manufacturer of bottled drinks, and has been an audit client of Nate & Co for five years. Twoaudit juniors attended the annual inventory count last Monday. They reported that Brenda Mangle, the newproduction manager of LA Shots Co, wanted the inventory count and audit procedures performed as quickly aspossible. As an incentive she offered the two juniors ten free bottles of ‘Super Juice’ from the end of theproduction line. Brenda also invited them to join the LA Shots Co office party, which commenced at the end ofthe inventory count. The inventory count and audit procedures were completed within two hours (the previousyear’s procedures lasted a full day), and the juniors then spent four hours at the office party.Required:(a) Define ‘money laundering’ and state the procedures specific to money laundering that should be consideredbefore, and on the acceptance of, the audit appointment of Fisher Co. (5 marks)

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5 You are the audit manager for three clients of Bertie & Co, a firm of Chartered Certified Accountants. The financialyear end for each client is 30 September 2007.You are reviewing the audit senior’s proposed audit reports for two clients, Alpha Co and Deema Co.Alpha Co, a listed company, permanently closed several factories in May 2007, with all costs of closure finalised andpaid in August 2007. The factories all produced the same item, which contributed 10% of Alpha Co’s total revenuefor the year ended 30 September 2007 (2006 – 23%). The closure has been discussed accurately and fully in thechairman’s statement and Directors’ Report. However, the closure is not mentioned in the notes to the financialstatements, nor separately disclosed on the financial statements.The audit senior has proposed an unmodified audit opinion for Alpha Co as the matter has been fully addressed inthe chairman’s statement and Directors’ Report.In October 2007 a legal claim was filed against Deema Co, a retailer of toys. The claim is from a customer who slippedon a greasy step outside one of the retail outlets. The matter has been fully disclosed as a material contingent liabilityin the notes to the financial statements, and audit working papers provide sufficient evidence that no provision isnecessary as Deema Co’s lawyers have stated in writing that the likelihood of the claim succeeding is only possible.The amount of the claim is fixed and is adequately covered by cash resources.The audit senior proposes that the audit opinion for Deema Co should not be qualified, but that an emphasis of matterparagraph should be included after the audit opinion to highlight the situation.Hugh Co was incorporated in October 2006, using a bank loan for finance. Revenue for the first year of trading is$750,000, and there are hopes of rapid growth in the next few years. The business retails luxury hand made woodentoys, currently in a single retail outlet. The two directors (who also own all of the shares in Hugh Co) are aware thatdue to the small size of the company, the financial statements do not have to be subject to annual external audit, butthey are unsure whether there would be any benefit in a voluntary audit of the first year financial statements. Thedirectors are also aware that a review of the financial statements could be performed as an alternative to a full audit.Hugh Co currently employs a part-time, part-qualified accountant, Monty Parkes, who has prepared a year endbalance sheet and income statement, and who produces summary management accounts every three months.Required:(a) Evaluate whether the audit senior’s proposed audit report is appropriate, and where you disagree with theproposed report, recommend the amendment necessary to the audit report of:(i) Alpha Co; (6 marks)

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A new internal auditor, Daisy Rosepetal, has recently joined Bluebell Co. She has been asked by management toestablish and to monitor a variety of social and environmental Key Performance Indicators (KPIs). Daisy has noexperience in this area, and has asked you for some advice. It has been agreed with Bluebell Co’s audit committeethat you are to provide guidance to Daisy to help her in this part of her role, and that this does not impair theobjectivity of the audit.(c) Recommend EIGHT KPIs which could be used to monitor Bluebell Co’s social and environmentalperformance, and outline the nature of evidence that should be available to provide assurance on theaccuracy of the KPIs recommended. Your answer should be in the form. of briefing notes to be used at ameeting with Daisy Rosepetal. (10 marks)Note: requirement (c) includes 2 professional marks.

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(c) Maxwell Co is audited by Lead Co, a firm of Chartered Certified Accountants. Leo Sabat has enquired as towhether your firm would be prepared to conduct a joint audit in cooperation with Lead Co, on the futurefinancial statements of Maxwell Co if the

题目

更多“(c) Maxwell Co is audited by Lead Co, a firm of Chartered Certified Accountants. Leo Sabat has enquired as towhether your firm would be prepared to conduct a joint audit in cooperation with Lead Co, on the futurefinancial statements of Maxwell Co if the”相关问题

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