Audit and Internal Review
(International Stream)
PART 2
TUESDAY13 JUNE 2006
The Association of Chartered Certified Accountants
Section A – ALL THREE questions are compulsory and MUST be attempted
1(a)State the control objectives for the ordering, despatch and invoicing of goods.(5 marks)
(b)Atlantis Standard Goods (ASG) Co has a year e古装美女图片
nd of 30 June 2006. ASG is a retailer of kitchen 笔记本关不了机
appliances such
as washing machines, fridges and microwaves. All sales are made via the company’s Internet site w
ith despatch and delivery of goods to the customer’s hou made using ASG’s vehicles. Appliances are purchad f冰凌花
rom many different manufacturers.
The process of making a sale is as follows:
(1)Potential customers visit ASG’s website and lect the kitchen appliance that they require. The website
ordering system access the inventory specification file to obtain details of products ASG lls.
(2)When the customer choos an appliance, order information including price, item and quantity requir过年日历
ed are
stored in the orders pending file.
(3)Online authorisation of credit card details is obtained from the customer’s credit card company automatically
by ASG’s computer systems.
(4)Following authorisation, the sales amount is transferred to the computerid sales day book. At the end of
each day the total from this ledger is transferred to the general ledger.
(5)Reimburment of the sales amount is obtained from each credit card company monthly, less the
appropriate commission charged by the credit card company.
(6)Following authorisation of the credit card, order details are transferred to a goods awaiting despatch file and
allocated a unique order reference code. Order details are automatically transferred to the despatch
department’s computer system.
(7)In the despatch department, goods are obtained from the physical inventory, placed on ASG vehicles and
the computerid inventory system updated. Order information is downloaded on a hand held computer with
a writable screen.
(8)On delivery, the customer signs for the goods on the hand held computer. On return to ASG’s warehou,
images of the customer signature are uploaded to the orders file which is then flagged as ‘order complete’.
This year’s audit planning documentation states that a substantive approach will be taken on the audit.
Required:
Tabulate the audit tests you should carry out on the sales and despatch system, explaining the reason for each test.(15 marks)
(20 marks)
2
2Wear Wraith (WW) Co’s main activity is the extraction and supply of building materials including sand, gravel, cement and similar aggregates. The company’s year end is 31 May and your firm has audited WW for a number of years.
The main ast on the balance sheet relates to non current asts. A junior member of staff has attempted to prepare the non-current ast note for the financial statements. The note has not been reviewed by the nior accountant and so may contain errors.
Land and Plant and Motor Railway Total
buildings machinery vehicles trucks COST$$$$$
1 June 2005100,000875,0001,500,000–2,475,000
Additions10,000125,000525,000995,0001,655,000 Disposals–(100,000)(325,000)–(425,000)
––––––––––––––––––––––––––––––––––––––––––
31 May 2006110,000900,0001,700,000995,0003,705,000
––––––––––––––––––––––––––––––––––––––––––Depreciation
1 June 200560,000550,000750,000–1,360,000
Charge2,200180,000425,00019七年级下册语文书古诗
9,000806,200 Disposals–(120,000)(325,000)–(445,000)
––––––––––––––––––––––––––––––––––––––––––
31 May 200662,200610,000850,000199,0001,721,200
––––––––––––––––––––––––––––––––––––––––––Net Book Value
31 May 200647,800290,000850,000796,0001,983,800
––––––––––––––––––––––––––鸡翅汤
––––––––––––––––Net Book Value
31 May 200540,000325,000750,000–1,115,000
–––––––––––––––––––––––––––––––––––––––––––Land and buildings relate to company offices and land for tho offices.
–Plant and machinery includes extraction equipment such as diggers and dumper trucks ud to extract sand and gravel etc.
–Motor vehicles include large trucks to transport the sand, gravel etc.
–Railway trucks relate to containers ud to transport sand and gravel over long distances on the railway network.
Depreciation rates stated in the financial statements are all bad on cost and calculated using the straight line basis.
The rates are:
Land and buildings2%
Plant and machinery20%
Motor vehicles33%
Railway trucks20%
Disposals in the motor vehicles category relates to vehicles which were five years old.
Required:
(a)List the audit work you should perform on railway trucks.(10 marks)
(b)You have just completed your analytical procedures of the non-current asts note.
Required:
(i)Excluding railway trucks, identify and explain any issues with the non-current ast note to rai with
management.
(ii)Explain how each issue could be resolved.(10 marks) Note: you do not need to re-cast the schedule.
(20 marks)
3[P.T.O.
3You are the audit manager of Tela & Co, a medium sized firm of accountants. Your firm has just been asked for assistance from Jumper & Co, a firm of accountants in an adjacent country. This cou
ntry has just implemented the internationally recognid codes on corporate governance and Jumper & Co has a number of clients where the codes are not being followed. One example of this, from SGCC, a listed company, is shown below. As your country already has appropriate corporate governance codes in place, Jumper & Co have asked for your advice regarding the changes necessary in SGCC to跆拳道红带
achieve appropriate compliance with corporate governance codes.
Extract from financial statements regarding corporate governance
Mr Sheppard is the Chief Executive Officer and board chairman of SGCC. He appoints and maintains a board of five executive and two non-executive directors. While the board ts performance targets for the nior managers in the company, no formal targets or review of board policies is carried out. Board salaries are therefore t and paid by Mr Sheppard bad on his asssment of all the board members, including himlf, and not their actual performance.
Internal controls in the company are monitored by the nior accountant, although detailed review is assumed to be carried out by the external auditors; SGCC does not have an internal audit department.
Annual financial statements are produced, providing detailed information on past performance.
Required:
Write a memo to Jumper & Co which:
(a)Explains why SGCC does not meet international codes of corporate governance
(b)Explains why not meeting the international c关于读书的文言文
odes may cau a problem for SGCC, and
(c)Recommends any changes necessary to implement tho codes in the company.
(20 marks)
4
Section B – TWO questions ONLY to be attempted
4(a)Explain the situations where an auditor may disclo confidential information about a client.(8 marks)
(b)You are an audit manager in McKay & Co, a firm of Chartered Certified Accountants. You are preparing the
engagement letter for the audit of Ancients, a public limited liability company, for the year ending 30 June 2006.
Ancients has grown rapidly over the past few years, and is now one of your firm’s most important clients.
Ancients has been an audit client for eight years and McKay & Co has provided audit, taxation and关于家的故事
management consultancy advice during this time. The client has been satisfied with the rvices provided, although the taxation fee for the period to 31 December 2005 remains unpaid.
Audit personnel available for this year’s audit are most of the staff from last year, including Mr Grace, an audit partner and Mr Jones, an audit nior. Mr Grace has been the audit partner since Ancients became an audit client. You are aware that Allyson Grace, the daughter of Mr Grace, has recently been appointed the financial director at Ancients.
To celebrate her new appointment, Allyson has suggested taking all of the audit staff out to an expensive restaurant prior to the start of the audit work for this year.
Required:
Identify and explain the risks to independence arising in carrying out your audit of Ancients for the year ending 30 June 2006, and suggest ways of mitigating each of the risks you identify.(12 marks)
(20 marks) 5ISA 610 Considering the Work of Internal Auditing states that ‘when the external auditor intends to u specific work
of internal auditing, the external auditor should evaluate and perform audit procedures on that work to confirm its adequacy for the external auditor’s purpos.’
Required:
(a)In relation to ISA 610, explain the factors the external auditor will consider when evaluating the work of the
internal auditor.(5 marks)
(b)ZPM is a listed limited liability company with a year end of 30 June. ZPM’s main activity is lling home
improvement or ‘Do-It-Yourlf’ (DIY) products to the public. Products sold range from nails, paint an
d tools to doors and showers; some stores also ll garden tools and furniture. Products are purchad from approximately 200 different suppliers. ZPM has 103 stores in eight different countries.
ZPM has a well-staffed internal audit department, who report on a regular basis to the audit committee. Areas where the internal and external auditors may carry out work include:
1.Attending the year end inventory count in 30 stores annually. All stores are visited on a rotational basis.
2.Checking the internal controls over the procurement systems (e.g. ensuring a liability is only recorded when
the inventory has been received).
3.Reviewing the operations of the marketing department.
Required:
For each of the above three areas, discuss
(i)the objectives of the internal auditor;(5 marks)
(ii)the objectives of the external auditor; and(5 marks)
(iii)whether the external auditor will rely on the internal auditor, and if reliance is required, the extent of that reliance.(5 marks)
(20 marks)
5[P.T.O.
