题目内容
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7 The receivables ledger control account below contains several incorrect entries.
Receivables ledger control account
A $133,840
B $135,540
C $137,740
D $139,840
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13 At 1 January 2005 a company had an allowance for receivables of $18,000
At 31 December 2005 the company’s trade receivables were $458,000.
It was decided:
(a) To write off debts totalling $28,000 as irrecoverable;
(b) To adjust the allowance for receivables to the equivalent of 5% of the remaining receivables based on past
experience.
What figure should appear in the company’s income statement for the total of debts written off as irrecoverable
and the movement in the allowance for receivables for the year ended 31 December 2005？
A $49,500
B $31,500
C $32,900
D $50,900
A.1 and 3
B.2 and 4
C.2 and 3
D.1 and 4
What figure should appear in the income statement for these items？
A $61,000
B $22,000
C $24,000
D $23,850
(d) Briefly describe the principal audit work to be performed in respect of the carrying amount of the following
items in the balance sheet:
(i) trade receivables; and (3 marks)
Advances to the importer can be given in the following ways except ______.
A．limits for issuing letters of credit
B．inward bill receivables
C．packing loans
D．delivery against bank guarantee
late 1990s it has extended its operations throughout Europe and most recently to Asia, where it is expanding rapidly.
You are a manager in Andando, a firm of Chartered Certified Accountants. You have been approached by Duncan
Seymour, the chief finance officer of Plaza, to advise on a bid that Plaza is proposing to make for the purchase of
MCM. You have ascertained the following from a briefing note received from Duncan.
MCM provides training in management, communications and marketing to a wide range of corporate clients, including
multi-nationals. The ‘MCM’ name is well regarded in its areas of expertise. MCM is currently wholly-owned by
Frontiers, an international publisher of textbooks, whose shares are quoted on a recognised stock exchange. MCM
has a National and an International business.
The National business comprises 11 training centres. The audited financial statements show revenue of
$12·5 million and profit before taxation of $1·3 million for this geographic segment for the year to 31 December
2004. Most of the National business’s premises are owned or held on long leases. Trainers in the National business
are mainly full-time employees.
The International business has five training centres in Europe and Asia. For these segments, revenue amounted to
$6·3 million and profit before tax $2·4 million for the year to 31 December 2004. Most of the International business’s
premises are held on operating leases. International trade receivables at 31 December 2004 amounted to
$3·7 million. Although the International centres employ some full-time trainers, the majority of trainers provide their
services as freelance consultants.
Required:
(a) Define ‘due diligence’ and describe the nature and purpose of a due diligence review. (4 marks)
Which of the following is NOT an audit software technique？
A.Using computer programs to extract a sample for a receivables circularisation
B.Running a computer program to test the addition of the cash book
C.Using a computer to perform an analytical review comparison of administration expenses against the prior year
D.Entering a sample of dummy sales orders through the computer system which takes customers over their credit limit to ensure the system rejects the orders
A.An increase in gearing leading to higher interest costs
B.A reduction in the allowance for uncollectible receivables
C.A decision to value inventory on the average cost basis from the first in first out (FIFO) basis. Unit prices of inventory had risen during the current year
D.A change from the amortisation of development costs being included in cost of sales to being included in administrative expenses
Palm Industries Co (Palm)
Palm’s year end was 31 March 2015 and the draft financial statements show revenue of $28·2 million, receivables of $5·6 million and profit before tax of $4·8 million. The fieldwork stage for this audit has been completed.
A customer of Palm owed an amount of $350,000 at the year end. Testing of receivables in April highlighted that no amounts had been paid to Palm from this customer as they were disputing the quality of certain goods received from Palm. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance.
Ash Trading Co (Ash)
Ash is a new client of Chestnut & Co, its year end was 31 January 2015 and the firm was only appointed auditors in February 2015, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing.
The inventory count at Ash’s warehouse was undertaken on 31 January 2015 and was overseen by the company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year end.
The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and inventory of $510,000.
Required:
For each of the two issues:
(i) Discuss the issue, including an assessment of whether it is material;
(ii) Recommend ONE procedure the audit team should undertake to try to resolve the issue; and
(iii) Describe the impact on the audit report if the issue remains UNRESOLVED.
Notes:
1 The total marks will be split equally between each of the two issues.
2 Audit report extracts are NOT required.
(a) You are the manager responsible for the audit of Dylan Co, a listed company, and you are reviewing the working papers of the audit file for the year ended 30 September 2012. The audit senior has left a note for your attention:
‘Dylan Co outsources its entire payroll, invoicing and credit control functions to Hendrix Co. In August 2012, Hendrix Co suffered a computer virus attack on its operating system, resulting in the destruction of its accounting records, including those relating to Dylan Co. We have therefore been unable to perform. the planned audit procedures on payroll, revenue and receivables, all of which are material to the financial statements. Hendrix Co has manually reconstructed the relevant figures as far as possible, and has supplied a written statement to confirm that they are as accurate as possible, given the loss of accounting records.’
Required:
(i) Comment on the actions that should be taken by the auditor, and the implications for the auditor’s report; and (7 marks)
(ii) Discuss the quality control procedures that should be carried out by the audit firm prior to the audit report being issued. (3 marks)
(b) You are also responsible for the audit of Squire Co, a listed company, and you are completing the review of its interim financial statements for the six months ended 31 October 2012. Squire Co is a car manufacturer, and historically has offered a three-year warranty on cars sold. The financial statements for the year ended 30 April 2012 included a warranty provision of $1·5 million and recognised total assets of $27·5 million. You are aware that on 1 July 2012, due to cost cutting measures, Squire Co stopped offering warranties on cars sold. The interim financial statements for the six months ended 31 October 2012 do not recognise any warranty provision. Total assets are $30 million at 31 October 2012.
Required:
Assess the matters that should be considered in forming a conclusion on Squire Co’s interim financial statements, and the implications for the review report. (6 marks)
(a) (i) Identify and explain FOUR financial statement assertions relevant to classes of transactions and events for the year under audit; and
(ii) For each identified assertion, describe a substantive procedure relevant to the audit of REVENUE. (8 marks)
(b) Hawthorn Enterprises Co (Hawthorn) manufactures and distributes fashion clothing to retail stores. Its year end was 31 March 2015. You are the audit manager and the year-end audit is due to commence shortly. The following three matters have been brought to your attention.
(i) Supplier statement reconciliations
Hawthorn receives monthly statements from its main suppliers and although these have been retained, none have been reconciled to the payables ledger as at 31 March 2015. The engagement partner has asked the audit senior to recommend the procedures to be performed on supplier statements. (3 marks)
(ii) Bank reconciliation
During last year’s audit of Hawthorn’s bank and cash, significant cut off errors were discovered with a number of post year-end cheques being processed prior to the year end to reduce payables. The finance director has assured the audit engagement partner that this error has not occurred again this year and that the bank reconciliation has been carefully prepared. The audit engagement partner has asked that the bank reconciliation is comprehensively audited. (4 marks)
(iii) Receivables
Hawthorn’s receivables ledger has increased considerably during the year, and the year-end balance is $2·3 million compared to $1·4 million last year. The finance director of Hawthorn has requested that a receivables circularisation is not carried out as a number of their customers complained last year about the inconvenience involved in responding. The engagement partner has agreed to this request, and tasked you with identifying alternative procedures to confirm the existence and valuation of receivables. (5 marks)
Required:
Describe substantive procedures you would perform. to obtain sufficient and appropriate audit evidence in relation to the above three matters.
Note: The mark allocation is shown against each of the three matters above.
