6 Discuss how developments in each of the following areas has affected the scope of the audit and the audit workundertaken:(a) fair value accounting; (6 marks)
6 Discuss how developments in each of the following areas has affected the scope of the audit and the audit work
undertaken:
(a) fair value accounting; (6 marks)
相关考题：
5 Ambush, a public limited company, is assessing the impact of implementing the revised IAS39 ‘Financial Instruments:Recognition and Measurement’. The directors realise that significant changes may occur in their accounting treatmentof financial instruments and they understand that on initial recognition any financial asset or liability can bedesignated as one to be measured at fair value through profit or loss (the fair value option). However, there are certainissues that they wish to have explained and these are set out below.Required:(a) Outline in a report to the directors of Ambush the following information:(i) how financial assets and liabilities are measured and classified, briefly setting out the accountingmethod used for each category. (Hedging relationships can be ignored.) (10 marks)
(ii) why the ‘fair value option’ was initially introduced and why it has caused such concern. (5 marks)
(b) Misson has purchased goods from a foreign supplier for 8 million euros on 31 July 2006. At 31 October 2006,the trade payable was still outstanding and the goods were still held by Misson. Similarly Misson has sold goodsto a foreign customer for 4 million euros on 31 July 2006 and it received payment for the goods in euros on31 October 2006. Additionally Misson had purchased an investment property on 1 November 2005 for28 million euros. At 31 October 2006, the investment property had a fair value of 24 million euros. The companyuses the fair value model in accounting for investment properties.Misson would like advice on how to treat these transactions in the financial statements for the year ended 31October 2006. (7 marks)Required:Discuss the accounting treatment of the above transactions in accordance with the advice required by thedirectors.(Candidates should show detailed workings as well as a discussion of the accounting treatment used.)
5 Financial statements have seen an increasing move towards the use of fair values in accounting. Advocates of ‘fairvalue accounting’ believe that fair value is the most relevant measure for financial reporting whilst others believe thathistorical cost provides a more useful measure.Issues have been raised over the reliability and measurement of fair values, and over the nature of the current levelof disclosure in financial statements in this area.Required:(a) Discuss the problems associated with the reliability and measurement of fair values and the nature of anyadditional disclosures which may be required if fair value accounting is to be used exclusively in corporatereporting. (13 marks)
(b) Discuss the view that fair value is a more relevant measure to use in corporate reporting than historical cost.(12 marks)
(c) Critically discuss the statement (in note 12) of the managing director of GBC and suggest how the companycould calculate the value of the service provision to the population of the Western region. (6 marks)
(b) Describe the principal audit work to be performed in respect of the useful lives of Shire Oil Co’s rig platforms.(6 marks)
(b) Describe the audit work to be performed in respect of the carrying amount of the following items in thebalance sheet of GVF as at 30 September 2005:(i) goat herd; (4 marks)
(c) Explain the extent to which you should plan to place reliance on analytical procedures as audit evidence.(6 marks)
6 The explosive growth of investing and raising capital in the global markets has put new emphasis on the developmentof international accounting, auditing and ethical standards. The International Federation of Accountants (IFAC) hasbeen at the forefront of the development of the worldwide accountancy profession through its activities in ethics,auditing and education.Required:Explain the developments in each of the following areas and indicate how they affect Chartered CertifiedAccountants:(a) IFAC’s ‘Code of Ethics for Professional Accountants’; (5 marks)
(b) Illustrate how you might use analytical procedures to provide audit evidence and reduce the level of detailedsubstantive procedures. (7 marks)
6 Certain practices have developed that threaten to damage the integrity and objectivity of professional accountants andthe reputation of the accounting profession.Required:Explain the following practices and associated ethical risks and discuss whether current ethical guidance issufficient:(a) ‘lowballing’; (5 marks)
3 You are the manager responsible for the audit of Lamont Co. The company’s principal activity is wholesaling frozenfish. 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 itsproperty. Lamont has incurred $0·3 million in clean up costs, $0·6 million in modernisation of the units toprevent 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 ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirementsto Hogg Warehousing Services. At 31 March 2007 it was not possible to physically inspect Lamont’s inventoryheld 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 ofquantities 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 ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
(c) Lamont owns a residential apartment above its head office. Until 31 December 2006 it was let for $3,000 amonth. 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 ended31 March 2007.NOTE: The mark allocation is shown against each of the three issues.
(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.
(c) With specific reference to Hugh Co, discuss the objective of a review engagement and contrast the level ofassurance provided with that provided in an audit of financial statements. (6 marks)
(b) Describe the principal audit procedures to be carried out in respect of the following:(i) The measurement of the share-based payment expense; (6 marks)
3 (a) Financial statements often contain material balances recognised at fair value. For auditors, this leads to additionalaudit risk.Required:Discuss this statement. (7 marks)
(b) You are the manager responsible for the audit of Poppy Co, a manufacturing company with a year ended31 October 2008. In the last year, several investment properties have been purchased to utilise surplus fundsand to provide rental income. The properties have been revalued at the year end in accordance with IAS 40Investment Property, they are recognised on the statement of financial position at a fair value of $8 million, andthe total assets of Poppy Co are $160 million at 31 October 2008. An external valuer has been used to providethe fair value for each property.Required:(i) Recommend the enquiries to be made in respect of the external valuer, before placing any reliance on theirwork, and explain the reason for the enquiries; (7 marks)
(ii) Identify and explain the principal audit procedures to be performed on the valuation of the investmentproperties. (6 marks)
(c) Identify and discuss the implications for the audit report if:(i) the directors refuse to disclose the note; (4 marks)
(c) In the context of a standard unmodified audit report, describe the content of a liability disclaimer paragraph,and discuss the main arguments for and against the use of a liability disclaimer paragraph. (5 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)
One of your audit clients is Tye Co a company providing petrol, aviation fuel and similar oil based products to the government of the country it is based in. Although the company is not listed on any stock exchange, it does follow best practice regarding corporate governance regulations. The audit work for this year is complete, apart from the matter referred to below.As part of Tye Co’s service contract with the government, it is required to hold an emergency inventory reserve of 6,000 barrels of aviation fuel. The inventory is to be used if the supply of aviation fuel is interrupted due to unforeseen events such as natural disaster or terrorist activity.This fuel has in the past been valued at its cost price of $15 a barrel. The current value of aviation fuel is $120 a barrel. Although the audit work is complete, as noted above, the directors of Tye Co have now decided to show the ‘real’ value of this closing inventory in the financial statements by valuing closing inventory of fuel at market value, which does not comply with relevant accounting standards. The draft financial statements of Tye Co currently show a profit of approximately $500,000 with net assets of $170 million.Required:(a) List the audit procedures and actions that you should now take in respect of the above matter. (6 marks)(b) For the purposes of this section assume from part (a) that the directors have agreed to value inventory at$15/barrel.Having investigated the matter in part (a) above, the directors present you with an amended set of financialstatements showing the emergency reserve stated not at 6,000 barrels, but reported as 60,000 barrels. The final financial statements now show a profit following the inclusion of another 54,000 barrels of oil in inventory. When queried about the change from 6,000 to 60,000 barrels of inventory, the finance director stated that this change was made to meet expected amendments to emergency reserve requirements to be published in about six months time. The inventory will be purchased this year, and no liability will be shown in the financial statements for this future purchase. The finance director also pointed out that part of Tye Co’s contract with the government requires Tye Co to disclose an annual profit and that a review of bank loans is due in three months. Finally the finance director stated that if your audit firm qualifies the financial statements in respect of the increase in inventory, they will not be recommended for re-appointment at the annual general meeting. The finance director refuses to amend the financial statements to remove this ‘fictitious’ inventory.Required:(i) State the external auditor’s responsibilities regarding the detection of fraud; (4 marks)(ii) Discuss to which groups the auditors of Tye Co could report the ‘fictitious’ aviation fuel inventory;(6 marks)(iii) Discuss the safeguards that the auditors of Tye Co can use in an attempt to overcome the intimidationthreat from the directors of Tye Co. (4 marks)
You are the audit supervisor of Maple Co and are currently planning the audit of an existing client, Sycamore Science Co (Sycamore), whose year end was 30 April 2015. Sycamore is a pharmaceutical company, which manufactures and supplies a wide range of medical supplies. The draft financial statements show revenue of $35·6 million and profit before tax of $5·9 million.Sycamore’s previous finance director left the company in December 2014 after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January 2015 who was previously a financial controller of a bank, and she has expressed surprise that Maple Co had not uncovered the fraud during last year’s audit.During the year Sycamore has spent $1·8 million on developing several new products. These projects are at different stages of development and the draft financial statements show the full amount of $1·8 million within intangible assets. In order to fund this development, $2·0 million was borrowed from the bank and is due for repayment over a ten-year period. The bank has attached minimum profit targets as part of the loan covenants.The new finance director has informed the audit partner that since the year end there has been an increased number of sales returns and that in the month of May over $0·5 million of goods sold in April were returned.Maple Co attended the year-end inventory count at Sycamore’s warehouse. The auditor present raised concerns that during the count there were movements of goods in and out the warehouse and this process did not seem well controlled.During the year, a review of plant and equipment in the factory was undertaken and surplus plant was sold, resulting in a profit on disposal of $210,000.Required:(a) State Maples Co’s responsibilities in relation to the prevention and detection of fraud and error. (4 marks)(b) Describe SIX audit risks, and explain the auditor’s response to each risk, in planning the audit of Sycamore Science Co. (12 marks)(c) Sycamore’s new finance director has read about review engagements and is interested in the possibility of Maple Co undertaking these in the future. However, she is unsure how these engagements differ from an external audit and how much assurance would be gained from this type of engagement.Required:(i) Explain the purpose of review engagements and how these differ from external audits; and (2 marks)(ii) Describe the level of assurance provided by external audits and review engagements. (2 marks)