(ii) Explain the organisational factors that determine the need for internal audit in public listed companies.(5 marks)
(ii) Explain the organisational factors that determine the need for internal audit in public listed companies.
(5 marks)
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5 An organisation’s goals can only be achieved through the efforts of motivated individuals.Required:Explain what is meant by the following terms:(a) Hygiene factors. (8 marks)
5 All managers need to understand the importance of motivation in the workplace.Required:(a) Explain the ‘content theory’ of motivation. (5 marks)
5 International Financial Reporting Standards (IFRSs) are primarily designed for use by publicly listed companies andin many countries the majority of companies using IFRSs are listed companies. In other countries IFRSs are used asnational Generally Accepted Accounting Practices (GAAP) for all companies including unlisted entities. It has beenargued that the same IFRSs should be used by all entities or alternatively a different body of standards should applyto small and medium entities (SMEs).Required:(a) Discuss whether there is a need to develop a set of IFRSs specifically for SMEs. (7 marks)
3 Susan Paullaos was recently appointed as a non-executive member of the internal audit committee of Gluck andGoodman, a public listed company producing complex engineering products. Barney Chester, the executive financedirector who chairs the committee, has always viewed the purpose of internal audit as primarily financial in natureand as long as financial controls are seen to be fully in place, he is less concerned with other aspects of internalcontrol. When Susan asked about operational controls in the production facility Barney said that these were not theconcern of the internal audit committee. This, he said, was because as long as the accounting systems and financialcontrols were fully functional, all other systems may be assumed to be working correctly.Susan, however, was concerned with the operational and quality controls in the production facility. She spoke toproduction director Aaron Hardanger, and asked if he would be prepared to produce regular reports for the internalaudit committee on levels of specification compliance and other control issues. Mr Hardanger said that the internalaudit committee had always trusted him because his reputation as a manager was very good. He said that he hadnever been asked to provide compliance evidence to the internal audit committee and saw no reason as to why heshould start doing so now.At board level, the non-executive chairman, George Allejandra, said that he only instituted the internal audit committeein the first place in order to be seen to be in compliance with the stock market’s requirement that Gluck and Goodmanshould have one. He believed that internal audit committees didn’t add materially to the company. They were, hebelieved, one of those ‘outrageous demands’ that regulatory authorities made without considering the consequencesin smaller companies nor the individual needs of different companies. He also complained about the need to have aninternal auditor. He said that Gluck and Goodman used to have a full time internal auditor but when he left a yearago, he wasn’t replaced. The audit committee didn’t feel it needed an internal auditor because Barney Chester believedthat only financial control information was important and he could get that information from his managementaccountant.Susan asked Mr Allejandra if he recognised that the company was exposing itself to increased market risks by failingto have an effective audit committee. Mr Allejandra said he didn’t know what a market risk was.Required:(a) Internal control and audit are considered to be important parts of sound corporate governance.(i) Describe FIVE general objectives of internal control. (5 marks)
(b) Criticise the internal control and internal audit arrangements at Gluck and Goodman as described in the casescenario. (10 marks)
(c) Define ‘market risk’ for Mr Allejandra and explain why Gluck and Goodman’s market risk exposure isincreased by failing to have an effective audit committee. (5 marks)
(b) Discuss FOUR factors that distinguish service from manufacturing organisations and explain how each ofthese factors relates to the services provided by the Dental Health Partnership. (5 marks)
(b) Identify and explain the financial statement risks to be taken into account in planning the final audit.(12 marks)
(c) Explain the extent to which you should plan to place reliance on analytical procedures as audit evidence.(6 marks)
(c) Explain the possible impact of RBG outsourcing its internal audit services on the audit of the financialstatements by Grey Co. (4 marks)
(ii) Briefly explain the implications of Parr Co’s audit opinion for your audit opinion on the consolidatedfinancial statements of Cleeves Co for the year ended 30 September 2006. (3 marks)
(ii) If a partner, who is an actuary, provides valuation services to an audit client, can we continue with the audit?(3 marks)Required:For each of the three questions, explain the threats to objectivity that may arise and the safeguards thatshould be available to manage them to an acceptable level.NOTE: The mark allocation is shown against each of the three questions above.
(iii) Can internal audit services be undertaken for an audit client? (4 marks)Required:For each of the three questions, explain the threats to objectivity that may arise and the safeguards thatshould be available to manage them to an acceptable level.NOTE: The mark allocation is shown against each of the three questions above.
(b) Explain the principal audit procedures to be performed during the final audit in respect of the estimatedwarranty provision in the balance sheet of Island Co as at 30 November 2007. (5 marks)
(b) (i) Explain the matters you should consider to determine whether capitalised development costs areappropriately recognised; and (5 marks)
(c) Describe the audit procedures you should perform. to determine the validity of the amortisation rate of fiveyears being applied to development costs in relation to Plummet. (5 marks)
(ii) Identify and explain the principal audit procedures to be performed on the valuation of the investmentproperties. (6 marks)
(ii) State the principal audit procedures to be performed on the consolidation schedule of the Rosie Group.(4 marks)
(ii) From the information provided above, recommend the matters which should be included as ‘findingsfrom the audit’ in your report to those charged with governance, and explain the reason for theirinclusion. (7 marks)
(a) List and explain FOUR methods of selecting a sample of items to test from a population in accordance with ISA 530 (Redrafted) Audit Sampling and Other Means of Testing. (4 marks)(b) List and explain FOUR assertions from ISA 500 Audit Evidence that relate to the recording of classes oftransactions. (4 marks)(c) In terms of audit reports, explain the term ‘modified’. (2 marks)
Following a competitive tender, your audit firm Cal Co has just gained a new audit client Tirrol Co. You are the manager in charge of planning the audit work. Tirrol Co’s year end is 30 June 2009 with a scheduled date to complete the audit of 15 August 2009. The date now is 3 June 2009.Tirrol Co provides repair services to motor vehicles from 25 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system. The software in each location isthe same because the programs were written specifically for Tirrol Co by a reputable software house. Data from each location is amalgamated on a monthly basis at Tirrol Co’s head office to produce management and financial accounts.You are currently planning your audit approach for Tirrol Co. One option being considered is to re-write Cal Co’s audit software to interrogate the computerised inventory systems in each location of Tirrol Co (except for head office)as part of inventory valuation testing. However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July is a major holiday period for your audit firm.Required:(a) (i) Explain the benefits of using audit software in the audit of Tirrol Co; (4 marks)(ii) Explain the problems that may be encountered in the audit of Tirrol Co and for each problem, explainhow that problem could be overcome. (10 marks)(b) Following a discussion with the management at Tirrol Co you now understand that the internal audit department are prepared to assist with the statutory audit. Specifically, the chief internal auditor is prepared to provide you with documentation on the computerised inventory systems at Tirrol Co. The documentation provides details of the software and shows diagrammatically how transactions are processed through the inventory system. This documentation can be used to significantly decrease the time needed to understand the computer systems and enable audit software to be written for this year’s audit.Required:Explain how you will evaluate the computer systems documentation produced by the internal auditdepartment in order to place reliance on it during your audit. (6 marks)