(c) Comment on the matters to be considered in seeking to determine the extent of Indigo Co’s financial loss
resulting from the alleged fraud. (6 marks)
第1题:
2 Your firm was appointed as auditor to Indigo Co, an iron and steel corporation, in September 2005. You are the
manager in charge of the audit of the financial statements of Indigo, for the year ending 31 December 2005.
Indigo owns office buildings, a workshop and a substantial stockyard on land that was leased in 1995 for 25 years.
Day-to-day operations are managed by the chief accountant, purchasing manager and workshop supervisor who
report to the managing director.
All iron, steel and other metals are purchased for cash at ‘scrap’ prices determined by the purchasing manager. Scrap
metal is mostly high volume. A weighbridge at the entrance to the stockyard weighs trucks and vans before and after
the scrap metals that they carry are unloaded into the stockyard.
Two furnaces in the workshop melt down the salvageable scrap metal into blocks the size of small bricks that are then
stored in the workshop. These are sold on both credit and cash terms. The furnaces are now 10 years old and have
an estimated useful life of a further 15 years. However, the furnace linings are replaced every four years. An annual
provision is made for 25% of the estimated cost of the next relining. A by-product of the operation of the furnaces is
the production of ‘clinker’. Most of this is sold, for cash, for road surfacing but some is illegally dumped.
Indigo’s operations are subsidised by the local authority as their existence encourages recycling and means that there
is less dumping of metal items. Indigo receives a subsidy calculated at 15% of the market value of metals purchased,
as declared in a quarterly return. The return for the quarter to 31 December 2005 is due to be submitted on
21 January 2006.
Indigo maintains manual inventory records by metal and estimated quality. Indigo counted inventory at 30 November
2005 with the intention of ‘rolling-forward’ the purchasing manager’s valuation as at that date to the year-end
quantities per the manual records. However, you were not aware of this until you visited Indigo yesterday to plan
your year-end procedures.
During yesterday’s tour of Indigo’s premises you saw that:
(i) sheets of aluminium were strewn across fields adjacent to the stockyard after a storm blew them away;
(ii) much of the vast quantity of iron piled up in the stockyard is rusty;
(iii) piles of copper and brass, that can be distinguished with a simple acid test, have been mixed up.
The count sheets show that metal quantities have increased, on average, by a third since last year; the quantity of
aluminium, however, is shown to be three times more. There is no suitably qualified metallurgical expert to value
inventory in the region in which Indigo operates.
The chief accountant disappeared on 1 December, taking the cash book and cash from three days’ sales with him.
The cash book was last posted to the general ledger as at 31 October 2005. The managing director has made an
allegation of fraud against the chief accountant to the police.
The auditor’s report on the financial statements for the year ended 31 December 2004 was unmodified.
Required:
(a) Describe the principal audit procedures to be carried out on the opening balances of the financial statements
of Indigo Co for the year ending 31 December 2005. (6 marks)
第2题:
(c) During the year Albreda paid $0·1 million (2004 – $0·3 million) in fines and penalties relating to breaches of
health and safety regulations. These amounts have not been separately disclosed but included in cost of sales.
(5 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Albreda Co for the year ended
30 September 2005.
NOTE: The mark allocation is shown against each of the three issues.
第3题:
(ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior has
documented that the finance director explained that Batik commenced trading on 7 October 2005, after
being set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained.
(4 marks)
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending
30 September 2006.
NOTE: The mark allocation is shown against each of the matters.
第4题:
(c) Your firm has provided financial advice to the Pholey family for many years and this has sometimes involved your
firm in carrying out transactions on their behalf. The eldest son, Esau, is to take up a position as a senior
government official to a foreign country next month. (4 marks)
Required:
Identify and comment on the ethical and other professional issues raised by each of these matters and state what
action, if any, Dedza should now take.
NOTE: The mark allocation is shown against each of the three situations
第5题:
(c) In April 2006, Keffler was banned by the local government from emptying waste water into a river because the
water did not meet minimum standards of cleanliness. Keffler has made a provision of $0·9 million for the
technological upgrading of its water purifying process and included $45,000 for the penalties imposed in ‘other
provisions’. (5 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended
31 March 2006.
NOTE: The mark allocation is shown against each of the three issues.
第6题:
(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of
$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in the
consolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,
$4·5 million, in its separate financial statements.
Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of
$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes to
Aragon’s financial statements disclose that they have been prepared on a going concern basis that assumes that
Seymour will continue to provide financial support. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Seymour Co for the year ended
30 September 2006.
NOTE: The mark allocation is shown against each of the three issues.
第7题:
(c) Describe the examination procedures you should use to verify Cusiter Co’s prospective financial information.
(9 marks)
第8题:
(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirements
to Hogg Warehousing Services. At 31 March 2007 it was not possible to physically inspect Lamont’s inventory
held by Hogg due to health and safety requirements preventing unauthorised access to cold storage areas.
Lamont’s management has provided written representation that inventory held at 31 March 2007 was
$10·1 million (2006 – $6·7 million). This amount has been agreed to a costing of Hogg’s monthly return of
quantities held at 31 March 2007. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
第9题:
(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steel
cookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. The
notes to the financial statements disclose the following:
‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects in
materials and workmanship under normal household use within a 10-year guarantee period. No provision
has been recognised as the amount of the obligation cannot be measured with sufficient reliability.’
(4 marks)
Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.
Required:
Identify and comment on the implications of these two matters for your auditor’s report on the financial
statements of Petrie Co for the year ended 31 March 2007.
NOTE: The mark allocation is shown against each of the matters above.
第10题:
(c) Identify and discuss the ethical and professional matters raised at the inventory count of LA Shots Co.
(6 marks)
第11题:
(b) (i) Explain the matters you should consider, and the evidence you would expect to find in respect of the
carrying value of the cost of investment of Dylan Co in the financial statements of Rosie Co; and
(7 marks)
第12题:
JJG Co is planning to raise $15 million of new finance for a major expansion of existing business and is considering a rights issue, a placing or an issue of bonds. The corporate objectives of JJG Co, as stated in its Annual Report, are to maximise the wealth of its shareholders and to achieve continuous growth in earnings per share. Recent financial information on JJG Co is as follows:
Required:
(a) Evaluate the financial performance of JJG Co, and analyse and discuss the extent to which the company has achieved its stated corporate objectives of:
(i) maximising the wealth of its shareholders;
(ii) achieving continuous growth in earnings per share.
Note: up to 7 marks are available for financial analysis.(12 marks)
(b) If the new finance is raised via a rights issue at $7·50 per share and the major expansion of business has
not yet begun, calculate and comment on the effect of the rights issue on:
(i) the share price of JJG Co;
(ii) the earnings per share of the company; and
(iii) the debt/equity ratio. (6 marks)
(c) Analyse and discuss the relative merits of a rights issue, a placing and an issue of bonds as ways of raising the finance for the expansion. (7 marks)
第13题:
(b) Using the information provided, state the financial statement risks arising and justify an appropriate audit
approach for Indigo Co for the year ending 31 December 2005. (14 marks)
第14题:
4 (a) Explain the auditor’s responsibilities in respect of subsequent events. (5 marks)
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending
30 September 2006.
NOTE: The mark allocation is shown against each of the matters.
第15题:
(b) The chief executive of Xalam Co, an exporter of specialist equipment, has asked for advice on the accounting
treatment and disclosure of payments made for security consultancy services. The payments, which aim to
ensure that consignments are not impounded in the destination country of a major customer, may be material to
the financial statements for the year ending 30 June 2006. Xalam does not treat these payments as tax
deductible. (4 marks)
Required:
Identify and comment on the ethical and other professional issues raised by each of these matters and state what
action, if any, Dedza should now take.
NOTE: The mark allocation is shown against each of the three situations.
第16题:
(b) A sale of industrial equipment to Deakin Co in May 2005 resulted in a loss on disposal of $0·3 million that has
been separately disclosed on the face of the income statement. The equipment cost $1·2 million when it was
purchased in April 1996 and was being depreciated on a straight-line basis over 20 years. (6 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended
31 March 2006.
NOTE: The mark allocation is shown against each of the three issues.
第17题:
(b) You are the audit manager of Johnston Co, a private company. The draft consolidated financial statements for
the year ended 31 March 2006 show profit before taxation of $10·5 million (2005 – $9·4 million) and total
assets of $55·2 million (2005 – $50·7 million).
Your firm was appointed auditor of Tiltman Co when Johnston Co acquired all the shares of Tiltman Co in March
2006. Tiltman’s draft financial statements for the year ended 31 March 2006 show profit before taxation of
$0·7 million (2005 – $1·7 million) and total assets of $16·1 million (2005 – $16·6 million). The auditor’s
report on the financial statements for the year ended 31 March 2005 was unmodified.
You are currently reviewing two matters that have been left for your attention on the audit working paper files for
the year ended 31 March 2006:
(i) In December 2004 Tiltman installed a new computer system that properly quantified an overvaluation of
inventory amounting to $2·7 million. This is being written off over three years.
(ii) In May 2006, Tiltman’s head office was relocated to Johnston’s premises as part of a restructuring.
Provisions for the resulting redundancies and non-cancellable lease payments amounting to $2·3 million
have been made in the financial statements of Tiltman for the year ended 31 March 2006.
Required:
Identify and comment on the implications of these two matters for your auditor’s reports on the financial
statements of Johnston Co and Tiltman Co for the year ended 31 March 2006. (10 marks)
第18题:
(b) Explain the matters that should be considered when planning the nature and scope of the examination of
Cusiter Co’s forecast balance sheet and income statement as prepared for the bank. (7 marks)
第19题:
3 You are the manager responsible for the audit of Lamont Co. The company’s principal activity is wholesaling frozen
fish. The draft consolidated financial statements for the year ended 31 March 2007 show revenue of $67·0 million
(2006 – $62·3 million), profit before taxation of $11·9 million (2006 – $14·2 million) and total assets of
$48·0 million (2006 – $36·4 million).
The following issues arising during the final audit have been noted on a schedule of points for your attention:
(a) In early 2007 a chemical leakage from refrigeration units owned by Lamont caused contamination of some of its
property. Lamont has incurred $0·3 million in clean up costs, $0·6 million in modernisation of the units to
prevent future leakage and a $30,000 fine to a regulatory agency. Apart from the fine, which has been expensed,
these costs have been capitalised as improvements. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
第20题:
(c) Lamont owns a residential apartment above its head office. Until 31 December 2006 it was let for $3,000 a
month. Since 1 January 2007 it has been occupied rent-free by the senior sales executive. (6 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
第21题:
(b) (i) Explain the matters you should consider to determine whether capitalised development costs are
appropriately recognised; and (5 marks)
第22题:
(c) With specific reference to Hugh Co, discuss the objective of a review engagement and contrast the level of
assurance provided with that provided in an audit of financial statements. (6 marks)
第23题:
You are an audit manager responsible for providing hot reviews on selected audit clients within your firm of Chartered
Certified Accountants. You are currently reviewing the audit working papers for Pulp Co, a long standing audit client,
for the year ended 31 January 2008. The draft statement of financial position (balance sheet) of Pulp Co shows total
assets of $12 million (2007 – $11·5 million).The audit senior has made the following comment in a summary of
issues for your review:
‘Pulp Co’s statement of financial position (balance sheet) shows a receivable classified as a current asset with a value
of $25,000. The only audit evidence we have requested and obtained is a management representation stating the
following:
(1) that the amount is owed to Pulp Co from Jarvis Co,
(2) that Jarvis Co is controlled by Pulp Co’s chairman, Peter Sheffield, and
(3) that the balance is likely to be received six months after Pulp Co’s year end.
The receivable was also outstanding at the last year end when an identical management representation was provided,
and our working papers noted that because the balance was immaterial no further work was considered necessary.
No disclosure has been made in the financial statements regarding the balance. Jarvis Co is not audited by our firm
and we have verified that Pulp Co does not own any shares in Jarvis Co.’
Required:
(b) In relation to the receivable recognised on the statement of financial position (balance sheet) of Pulp Co as
at 31 January 2008:
(i) Comment on the matters you should consider. (5 marks)