367904 Advanced Auditing – Tutorial Mini Audit
2013 SEMESTER 1 CONTENTS MINI AUDIT – VOSPA LTD
AUDIT PLANNING & RISK ASSESSMENTS TQ6: TQ6: Audit Planning and Risk Assessments TQ7: TQ7: Analytical Procedures Procedures Materiality Assessments Assessments INTERIM AUDIT TQ8: TQ8: Assessing !eneral "ontrol Risks TQ9: TQ9: Audit o# $ales "ollection $ystem FINAL AUDIT TQ13: TQ13: Audit o# Accounts Receiva%les& Receiva%les& 'ad (ou%t#ul (e%ts TQ15: TQ15: Audit o# "as) and 'ank TQ20: TQ20: Audit o# Provision Provision #or "ontingent *ia%ilities TQ22: TQ22: Audit o# Audit Re+orting
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367904 Advanced Auditing – Tutorial Mini Audit
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3 TQ6. A/)# P'((( & R4 A%+%(# ISA N N 220 220 : Qual Read ISA Qualit ity y cont contro roll for for an audit audit of nanc nancia iall statements; ISA N 210 : Agreeing the terms of audit ISA N N 300 300 : Plan enga engage geme ment nts; s; ISA Planni ning ng an audi auditt of nan nanci cial al statements; ISA N 315 : Identifying and assessing the risks of material misstatement through understanding the entity and its ISA N 330 330 : The envi enviro ronm nmen entt and ISA The audit auditor or’s ’s respo respons nses es to assessed risks. ' A**%#'(*% !: '( A/)# C%(# "raddock -aug)& t)e managing director .M(/ o# -os+a *td a++roac)ed your audit +artner +artner regarding regarding t)e audit o# t)e com+any #or t)e year ended 3, (ecem%er (ecem%er 0132 -os+a os+a *td *td is a larg large e +u%l +u%lic ic com+ com+an any y2 t manu manu#a #act ctur ures es and and sells sells e5el e5eller lery y2 ts ts manu#acturing #actory is situated in )angarei and its )ead oce and ten retail outlets in Auckland2 T)e com+any also sells to ot)er inde+endent retailers in t)e )ig)8end e5ellery market2 -os+a *td 5as +reviously audited %y van "o2& %ut at t)e end o# last last years years audit& audit& t)ere t)ere 5as a dis+ dis+ut ute e %et5 %et5ee een n t)e t)e mana managi ging ng direct director or -aug) and t)e +revious auditors over: .a/ t)e +ro+er valuation valuation o# t)e 5ork8in8+rogress .%/ t)e inclusion in sales o# inventory t)at )as )as not %een +aid #or nor delivered delivered T)is dis+ute led to -aug)s decision to c)ange t)e com+any auditors2 As an audit manager& you )ave %een asked %y your audit +artner to assess 5)et)er t)is ne5 client s)ould %e acce+ted2 ;ou asked -aug)& -aug)& t)e M( #or )is +ermission to con#er 5it) t)e +revious auditors2
Q/%#!( 1: >+lain t)e ste+s to take in deciding 5)et)er to acce+t t)is ne5 client?
, P"%+('" R4 A%+%(# ;our ;our +reliminary assessment o# -os+a *td led to t)e acce+tance o# t)is audit client2 As manager& you are in c)arge o# t)is audit client and you are no5 re@uired to +lan t)e audit2 (uring a visit to t)e clients )ead oce in Auckland& you managed to gat)er t)e #ollo5ing in#ormation #rom # rom t)e M( and )is sta: ,/ T)e T)e +ers +erson onne nell in t)e t)e cent centra ralis lised ed acco accoun unti ting ng de+a de+art rtme ment nt are are com+ com+et etent ent %ut %ut seemed some5)at over5orked and under+aid relative to t)e ot)er em+loyees2 / T)e accounting accounting system system is com+uterised com+uterised and t)e +rocess +rocessing ing is centralised centralised at )ead oce in Auckland2 T)e com+uter e@ui+ment 5as u+graded last Bune2 T)is s)ould +otentially im+rove t)e record kee+ing 3/ T)e com+any com+any )as )as an internal internal audit audit de+artment de+artment22
367904 Advanced Auditing – Tutorial Mini Audit 4/ $tock8take 5ill %e )eld on %alance date 3, (ecem%er 013 at t)e dierent locations2 C/ -aug)n "raddock& t)e M( is also a s)are)older o# t)e com+any2 6/
ecutives2 T)ey receive relatively lo5 salaries2
Q/%#!( 2. a/ denti#y t)e maor audit risks concerns you s)ould )ave #or -os+a *td %/ >+lain )o5 t)e risk concerns 5ould im+act on Enancial re+orting .%y 5ay o# misstatements& omissions& distortions and non8disclosures/2 c/ $tate t)e audit strategies #or investigating t)e signiEcance o# eac) o# t)e items in .a/ d/ (iscuss t)e general +lanning a++roac) #or t)is audit client2 Present your ans5ers as #ollo5s:
'M';!" *!(*%"( )%(#<%)
,R%'!( :!" !/" *!(*%"(
* A/)# #"'#% %
3
367904 Advanced Auditing – Tutorial Mini Audit
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3 TQ7. A('#*' P"!*%)/"% & M'#%"'# A%+%(# Read ISA N 520. Analytical Procedures and ISA N 320. Materiality in Planning and Performing and Audit Hsing t)e in#ormation in t)e unaudited Enancial statements #or -os+a *td2 #or t)e year ended 3, (ecem%er 013 .re#er to >cel Dile 8 TI7 -J$PA *T( Dinancial $tatements/& com+lete t)e #ollo5ing ratio calculations2 Kote t)at t)is is t)e stage 5)ere t)e auditor uses )is or )er understanding o# t)e %usiness& t)e industry and t)e results o# t)e ratio calculations .analytical +rocedures/ in audit +lanning to antici+ate any account %alances and assertions t)at are likely to %e misstated& and also to +lan t)e initial audit res+onses2
R%=/"%). ' C'*/'#% #$% :!!>( "'#! :!" V!' L#) '() *!+'"% #$%+ >#$ #$% *!+'"'#?% ()/#" )'#' #'#%) !( #$% /('/)#%) <('(*' #'#%+%(# :!" #$% '+% %"!) R'#!
20-3 20-2
20-1
,2 2 32 42 C2
Asset Turnover .salesLtotal assets/ ProEt Margin .G +roEt %e#ore ta>esLsales/ RJA .G +roEt %e#ore ta>esLtotal assets/ "a+ital $tructure *everage .total assetsLtotal e@uity/ Return on @uity .G +roEt %e#ore ta>esLtangi%le net 5ort)/ 62 $alesLKet Di>ed Assets 72 AR Turnover in (ays .ARLsales > 36C/ F2 nventory Turnover in (ays .nv2L"!$ > 36C/ 92 !ross J+erating "ycle ,02AP Turnover in (ays .APL"!$ 36C/ ,,2Ket J+erating "ycle ,2"urrent Ratio ,32Iuick Ratio ,42Dree "as) Dlo5 ,C2"as) Dlo5 #rom J+erations to "urrent (e%t (ividends ,62(e%tLort)
, @'%) !( #$% (:!"+'#!( ( ' ',!?% )*/ #$% *!(*/!( !/ >!/) '""?%) '# :!" #$% *!+'( F!" '( '"%' >$%"% !/ $'?% '/)# *!(*%"(. ,2 denti#y t)e account %alances and assertions t)at may %e misstated& 2 >+lain 5)y your analytical +rocedures indicate t)at t)e assertion mig)t %e misstated& and
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367904 Advanced Auditing – Tutorial Mini Audit 32 (iscuss +ossi%le audit strategy to detect misstatements i# t)ey e>ist2
* P"%+('" B/)+%(# !( M'#%"'# Jutline your +reliminary udgments a%out materiality #or -os+a *td2 T)is is t)e stage 5)ere t)e auditor makes +reliminary decisions a%out 5)at 5ill %e considered material 5)en setting t)e sco+e o# audit +rocedures2 ;ou s)ould dra5 conclusions a%out: .,/ Materiality at t)e Enancial statement level and ./ Materiality at t)e account %alance level 5)ere you allocate t)e overall Enancial statement materiality to a++ro+riate %alance s)eet accounts2 (iscuss your consideration o# %ot) @uantitative and @ualitative #actors in your discussion2
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367904 Advanced Auditing – Tutorial Mini Audit ) R%/# !: A('#*' P"!*%)/"% P%":!"+%) ( A/)# P'((( T)e #ollo5ing memo revie5s t)e results o# analytical +rocedures +er#ormed during audit +lanning2 T)e memo analyNes ratios and in#ormation associated 5it) .,/ earnings and +roEta%ility& ./ t)e "om+anys o+erating cycle& .3/ li@uidity and .4/ solvency2 T)e #ollo5ing analysis %ot) com+ares com+any +er#ormance against industry as 5ell as com+ares t)e current year unaudited num%ers against +rior years audited results2
U% #$% :!!>( "'#! #! %'( !/" *!(*%"( '() #"'#%% :!" #$% '/)# !: V!' L#). R'#! E'"(( '() P"!<#',# $ales !ro5t)
E'('#!(
•
•
Asset turnover .$alesLTotal Assets/
•
$ales to net E>ed assets
•
!ross +roEt margin ProEt %e#ore ta>es Return on assets Return on e@uity
• • •
O%"'#( C*% Account receiva%le turnover in days •
•
nventory turn days
•
Accounts +aya%le turnover
L=/)# "urrent and @uick ratios •
S!?%(* (e%t to net 5ort) ratio •
O?%"' C!(*/!(
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367904 Advanced Auditing – Tutorial Mini Audit % R%:%" #! E$,# 1 '() E$,# 2 '() %% $!> ' "!/$ %#+'#% :!" '((( +'#%"'# )%#%"+(%) '() '!*'#%) #! #$% '**!/(#
E$,# 1. P"!?)% ' "!/$ %#+'#% !: '((( +'#%"'#
1 % of Total Assets Variable Percent of Total Assets 1% of Total #eenes Variable Percent of Total #eenes
$ $ $ $
Base 22,978,691 22,978,691 &!,27,72" &!,27,72"
!% of Pre'Ta( )ncome 1"% of Pre'Ta( )ncome 1% of *ross Profit
$ $ $
788,988 788,988 9,876,922
$ $ $ $
Materiality Estimate 229,787 1!,2"2 &!2,77 19,!1"
$ $ $
&9,9 78,899 98,769
E$,# 2. A!*'#!( !: M'#%"'# #! A**!/(#
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367904 Advanced Auditing – Tutorial Mini Audit
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3
TQ8. A%( G%(%"' C!(#"! R4 Read ISA N 330 : The auditor’s responses to assessed risks ;our in@uiries and o%servations o# -os+a *tds general control environment revealed t)e #ollo5ing in#ormation: I(#%"# '() E#$*' V'/% "raddock -aug) .t)e com+any M(/ and )is son "onrad .t)e ")air o# t)e 'oard/ )ave al5ays +laced a +remium on values o# integrity and et)ics2 Dor years& %usiness 5as conducted on a )ands)ake& and commitments made %y t)e com+any 5ere al5ays )onoured2 "om+any em+loyees also value integrity and et)ics2 T)is @uality is evidenced in em+loyee 5)o )as %een 5it) t)e com+any #or more t)an a year or t5o2 M'('%+%(# P$!!$ '() O%"'#( S#% T)e +rimary #ocus o# -os+a *tds strategic +lan is to gro5 revenues and earnings2 n recent years& t)e com+any )as directed resources to a ne5 +roduct line& and t)e com+anys %usiness strategy )as #ocused on revenue gro5t)2 $ales gre5 %y 30G in 0> and unaudited results s)o5ed FG sales gro5t) in 0>32 Management 5as 5illing to take calculated risks in order to su++ort gro5t) in market s)are and %rand recognition2 T)e current generous +roEt s)aring +lan #or t)e sales e>ecutives is designed to re5ard t)em #or revenue gro5t)2 T)e +revious auditor e>+erienced a one8time +ro%lem associated 5it) revenue recognition2 C!++#+%(# #! C!+%#%(*% n order to success#ully manage gro5t)& t)e M( e>+anded )is management team %y a++ointing Bames (oyle .5it) over ,3 years o# industry e>+erience/ as ")ie# J+erating Jcer ."JJ/ and Bulia Anderson .+reviously an audit manager 5it) Reddy and A%le/ as ")ie# Dinancial Jcer ."DJ/2 Bulia 5as )ired %ecause o# )er #amiliarity 5it) %eneEts and risks o# enter+rise resource +lanning systems2 Bulia Anderson& t)e "DJ& )as res+onsi%ility #or t)e com+anyOs Enancing needs& accounting& and in#ormation systems2 Many accounting and in#ormation systems issues )ave %een delegated to )er2 Bulia immediately initiated a +roect to u+grade t)e com+anyOs com+uteriNed accounting system2 $)e revie5s t)e +rogress on t)e ne5 system installation 5it) t)e T manager on a mont)ly %asis2 T)e "DJ recently )ired Bay
367904 Advanced Auditing – Tutorial Mini Audit gro5ing in#ormation system needs2 Bay +erience 5it) t)e "om+any2 n t)e accounting de+artment& you o%served t)at t)ere is a +articular accounting sta 5)o re@uires more training2 T)e sta is a c)allenge #or t)e "DJ2 T)e com+any )as )ired com+etent individuals #rom outside to meet t)e com+anys T and internal audit needs2 T)ese roles are ne52 n order to kee+ u+ 5it) gro5ing 9
367904 Advanced Auditing – Tutorial Mini Audit demands& em+loyees& +articularly in t)e accounting and t)e T de+artments are very over5orked2 Jt)er +rocedures +er#ormed to o%tain an understanding o# internal control revealed t)e #ollo5ing in#ormation: ,2 T)e com+any )as identiEed a small grou+ o# inde+endent e5ellery retailers in t)e )ig) end market2 T)eir sales )ave deteriorated to t)e +oint t)at it is no5 dou%t#ul 5)et)er t)ey are a%le to re+ay -os+a *td #or t)eir +urc)ases2 +anded your tests in vie5 o# t)ese situations and are satisEed t)at t)e +er+etual records reasona%ly reUect t)e @uantities on )and2 42 T)e %oard o# directors )as recently ado+ted a +olicy t)at allo5s t)e com+any to invest e>cess #unds in s)ort8term s)are investments2 T)e "DJ )as sole aut)ority #or +urc)asing and selling t)e s)ares investments2 "om+any s)ares +urc)ased 5ill %e credited to a com+any account at a local %rokerage )ouse2 T)e s)ares are )eld in t)e "om+anyOs name2 All corres+ondence related to t)e s)are investments are sent directly to t)e "DJ2 $)e in turn& #or5ards %rokerage advices to )er assistant #or recording in t)e accounts2 C2 A com+lete +)ysical inventory o# "om+anyOs stock o# com+leted and 5ork in +rogress e5ellery )ave recently %een counted2
R%=/"%). a/ denti#y t)e control environment #actors t)at 5ould im+act t)e com+anyOs internal control2 %/ *ist t)e strengt)s and 5eaknesses in -os+a *tdOs general internal control2 ,0
367904 Advanced Auditing – Tutorial Mini Audit c/ Make suggestions #or im+roving t)e 5eaknesses identiEed in .%/ a%ove2 d/ Dor t)e accounts receiva%le and inventory accounts identi#y one assertion #or 5)ic) you 5ould assess control risk at t)e ma>imum or slig)tly %elo5 t)e ma>imum2 >+lain your logic2
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367904 Advanced Auditing – Tutorial Mini Audit
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3 TQ9. A/)# !: S'% & C!%*#!( S#%+ TE SALES SSTEM FOR VOSPA LTD *ocal e5ellery retailers usually +)one t)roug) t)eir orders to t)e com+any2 T)e orders are entered into t)e com+uter via terminals located in t)e sales de+artment2 T)e credit controller su%ects ne5 retail customers to credit c)ecks %e#ore t)ey are acce+ted2 'e#ore a sales order is acce+ted& t)e com+uter c)ecks credit limits& reecting orders #rom retail customers 5it) accounts more t)an t5o mont)s overdue and also t)e inventory master Ele to determine t)e availa%ility o# e5ellery items ordered2 ac) edited sales transaction is t)en recorded and stored in t)e sales order Ele2 At t)e start o# eac) day& t)e com+uter retrieves t)e sales order Ele and +re+ares a !oods (es+atc) *ist& 5)ic) also automatically u+dates t)e order Ele2 Jnce t)e orders are +re+ared& t)e delivery clerk u+dates t)e com+uter Ele #rom a terminal located in t)e des+atc) de+artment2 T)is involves: a2 Accessing t)e a++ro+riate menu2 %2 ntering t)e customer num%er2 c2 ntering t)e stock item num%er.s/ and @uantity2 T)e in+ut controls )ere are: a2 "om+leteness c)eck 8 E>ed #ormat screen2 %2 ")eck digits #or %ot) customer and stock item num%ers2 c2 >istence c)eck #or customer and stock item num%ers against master Eles2 T)e com+uter t)en +rints out a #our co+y +acking sli+Linvoice set2 T)e co+ies are distri%uted as #ollo5s: "o+y ,: To t)e retail customer2 "o+y : To t)e retail customer 8 signed and returned as +roo# o# recei+t o# goods2 "o+y 3: Diled in (es+atc) (e+artment2 "o+y 4: To t)e Accounting (e+artment2 All e5ellery des+atc)es )ave t5o co+ies o# t)e invoices attac)ed2 n t)e Accounting (e+artment& daily accounts +rocessing includes t)e #ollo5ing ste+s: a2 H+date t)e accounts receiva%le master Ele2 %2 Pre+are a daily sales ournal2 c2 Produce a 5eekly gross margin re+ort %y +roduct2 d2 Produce a missingLdu+licate inventory master Ele2 e2 H+date t)e +er+etual inventory master Ele2 #2 Pre+are mont)ly customer statements 5)ic) are +rom+tly sent out2 ;ou )ave carried out a +reliminary evaluation o# t)e sales system& and decided to rely on t)e controls2
REQUIRED. a/ )at is t)e +ur+ose o# tests o# controls? %/ )at is t)e +ur+ose o# su%stantive test +rocedures? * (iscuss t)e relations)i+ %et5een t)e tests o# controls and su%stantive tests2
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367904 Advanced Auditing – Tutorial Mini Audit d/ )at are t)e audit +rocedures .tests o# controls and su%stantive tests/ you 5ill carry out during t)e interim audit o# t)e sales system o# -os+a *td?
2 TE CAS RECEIPTS SSTEM FOR VOSPA LTD Most o# -os+a *tds sales are on credit to 5)olesaler and retailer e5ellers2
R%=/"%) a/ >+lain t)e interrelations)i+s %et5een internal control evaluation and tests o# controls #or cas) recei+ts& and t)e Enal audit o# %ank accounts2 , *ist t)e +rocedures you 5ould +er#orm on t)e cas) recei+ts system descri%ed a%ove2
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367904 Advanced Auditing – Tutorial Mini Audit
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3
TQ13. A/)# !: A**!/(# R%*%?',% @') & D!/,#:/ D%,# ;ou are no5 starting su%stantive audit 5ork #or veri#ying Accounts Receiva%le and 'ad (e%ts as at 3, (ecem%er 0132 J%tain t)e com+anys accounts receiva%le aged trial %alance .Re#er to e>cel Ele 8 TI9 -J$PA *T( Accounts Receiva%les Aged Analysis/2 T)is sc)edule is included in t)e 5orking +a+ers2 Assume t)at you )ave c)ecked t)e aged trial %alance 5it) t)e accounts receiva%le su%sidiary ledger and t)at t)e su%sidiary ledger su++orts t)e aged trial %alance regarding %ot) t)e amounts due and age o# accounts2 Jn Tuesday& Banuary & you +re+ared and mailed %ot) +ositive and negative accounts receiva%le conErmations2 -os+a *tds sta +rovided you 5it) some assistance2
P!#?% *!(<"+'#!( 5ere sent to t)e Eve customers 5it) %alances over ,0&000& as #ollo5s: .,/ DrankieOs Dloral Be5ellers& ./ Tears and (oe#all "om+any& .3/ Anne ")arlotte $+arkles& .4/ ;oung and 'eauti#ul& and .C/ (arings2 N%'#?% *!(<"+'#!( 5ere mailed to all ot)er customers 5it) an accounts receiva%le %alance2 ;ou )ave received re+lies on all o# t)e +ositive conErmations and no re+lies to t)e negative conErmations& e>ce+t #or t)e conErmation re@uest sent to "a+itol Dine Rings2 t 5as returned %y t)e Post Jce %ecause o# its ina%ility to deliver2 T)e +ositive conErmations are attac)ed2 H+on c)ecking 5it) t)e accounts receiva%le accountant& you learned t)at a ,&60 credit s)ould )ave %een issued to Anne ")arlotte Pendants& %ut t)e credit 5as never +osted2 ;ou also discussed t)e delin@uent accounts 5it) t)e accounts receiva%le accountant2 $)e commented on t)ose customers and t)eir +aying )a%its:
C/#!+%" A$' D'+!() A((% C$'"!##% P%()'(# @!,% @%'/# S/ @!) P%"*( C'#! F(% R( C/#R'#% D*!/(# S#!"% D'"( F"'(4%H F!"' B%>% I(*%(% L#) B'( D%# S#!"%
P'( $',# G!!) '**!/(# C"%)# !: 1620 $!/) ,% '!>%) G!!) '**!/(# S!> '( !!) '**!/(# P"!,', > *!%*# (!#$( S!> '( ,/# $' '>' ') E#',$%) *!+'( !!) ' G!!) '**!/(# G!!) '**!/(# S!> '( !!) '**!/(#
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367904 Advanced Auditing – Tutorial Mini Audit L!(% S#'" S/ R'/*$H D%'"#+%(# S#!"% T%'" '() D!%:' P%'" J'+H P%'" !/( '() @%'/#:/
G!!) '**!/(# S!> ' G!!) '**!/(# G!!) '**!/(# G!!) '**!/(# G!!) '**!/(#
T)e Accounts Receiva%le accountant indicated t)at s)e )ad s+oken 5it) t)e Enancial controller and t)e sales manager& a%out t)e delin@uent "a+itol Dine Rings account2 T)ey 5ere in agreement t)at it s)ould %e 5ritten o2 Accounts amounting to ,4&00 )ad %een 5ritten o during t)e year you noted t)at all 5rite8os 5ere a++roved %y t)e Accounts Receiva%le accountant& and t)at t)ey are not listed in t)e Accounts Receiva%le – Aged Trial 'alance2 Drom t)e cas) recei+ts ournal you sa5 t)e #ollo5ing su%se@uent +ayments made on t)e accounts receiva%les %alances as o# (ecem%er 3,& 0132
C/#!+%" A((% C$'"!##% P%()'(# D'"( F"'(4%H F!"' B%>% I(*%(% L#) L!(% S#'" S/ T%'" '() D!%:' P%'" !/( '() @%'/#:/
P'+%(# A+!/(# 27100 2300 37600 2000 200 68000 20000
P'+%(# D'#% 112 102 11 107 11 102 105
R%=/"%) E%"*% ,2 Pre+are a su%stantive audit +rogram to test accounts receiva%le %alances and %ad de%ts2 Hse t)e Enancial statement assertions as t)e maor )eadings or ca+tions #or your +rogram2 *ist t)e a++ro+riate ste+s under eac) o# t)ese )eadings: Kone o# t)e accounts receiva%les are Ectitious Ko accounts receiva%les )ave %een omitted #rom t)e %alance s)eet T)e accounts receiva%les are genuine claims o5ed %y t)e com+any Pledged accounts receiva%les used as collateral are disclosed Receiva%les #rom directors& ocers are +ro+erly disclosed • • • • •
2 Per#orm all re@uired audit 5ork on t)e accounts receiva%les aged analysis sc)edule according to t)e audit +rogram +re+ared in .,/ a%ove2 Pre+are a sc)edule to analyNe t)e +rovision #or dou%t#ul de%ts and t)e %ad de%ts 5rite8o account #or t)e current year& +er#orming all a++ro+riate audit 5ork2 ;ou )ave determined t)at t)e e>+ected uncollecti%le +ercentages #rom t)e +rior year are still a++ro+riate #or t)e current year i2e2 3G o# total de%tors2
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367904 Advanced Auditing – Tutorial Mini Audit
CONFIRMATION OF DE@TORS Banuary 2 013 F"'(4%H F!"' B%>% 602 R?%" S#"%%# M'(/4'/ C# (ear $ir or Madam: Dor t)e +ur+ose o# +roviding inde+endent conErmation o# our accounts receiva%le& +lease advise our auditors& o# t)e correctness o# your %alance 5it) us as o# (ecem%er 3,& 013& as s)o5n on t)e enclosed statement2 A#ter com+aring t)e statement 5it) your records& +lease sign t)e conErmation %elo5 and return it directly to our auditors in t)e enclosed& addressed envelo+e2 # your records dier #rom t)e %alance s)o5n& +lease note your %*%#!( %elo52 T)is letter is not a re@uest #or +ayment& %ut merely #or conErmation o# your account %alance2 ;ours very truly& -J$PA *T(
P%#%" N CONFIRMATION OF DE@TORS C!(<"+'#!( R%=/%# N! ")artered Accountants 4C (avies Rd Manukau "ity
D1
(ear $ir or Madam: ;our account s)o5ing a %alance o# 37&600 o5ing %y us& as at ,L3,L013 is correct2 -ery truly yours& F"'(4%H F!"' B%>% B'+% J$#+!"% ")ie# Accountant Banuary ,62014 E*%#!(. KJ 1"PTJK$
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367904 Advanced Auditing – Tutorial Mini Audit CONFIRMATION OF DE@TORS "onErmation Re@uest Ko ( ")artered Accountants 4C (avies Rd Manukau "ity (ear $ir or Madam: ;our account s)o5ing a %alance o# 7&,00 o5ing %y us& as at ,L3,L013 is in correct -ery truly yours& T%'" '() D!%:' P%'" Witlam. Okeefe, Controller ,L,,L014 E*%#!(. !"#$%%% payment made prior to &ecem'er ()$ *%+(. ,alance as of )*-()-*%+( should only 'e !$)%% ///////////////////////////////////////////////////////////////////////////////// CONFIRMATION OF DE@TORS "onErmation Re@uest Ko (3 ")artered Accountants 4C (avies Rd Manukau "ity (ear $ir or Madam: ;our account s)o5ing a %alance o# 30&,0 o5ing %y us& as at ,L3,L013 is in correct -ery truly yours& Anne ")arlotte Pendants Jane Thompsom Banuary ,2 014 E*%#!(. e returned ,&60 o# merc)andise in Kovem%er2 e 5ere +romised credit %ut )ave not yet received it2 T)e %alance at 3,2,2013 s)ould %e F&C00
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CONFIRMATION OF DE@TORS "onErmation Re@uest no (4 ")artered Accountants 4C (avies Rd Manakau "ity (ear $ir or Madam: ;our account s)o5ing a %alance o# F&000 o5ing %y us& as at ,L3,L013 is incorrect -ery truly yours& ;ou ng and 'eauti#ul Roger Mc Adams President ,L9L014 E*%#!(. e only o5e F&0002 'alance a%ove is incorrect2 88888888888888888888888888888888888888888888888888888888888888888888 CONFIRMATION OF DE@TORS "onErmation Re@uest no (C ")artered Accountants 4C (avies Rd Manukau "ity (ear $ir or Madam: T)e statement o# our account s)o5ing a %alance o# 3,&900 as o# ,L3,L013 is correct2 -ery truly yours& (arings R!%+'" J'+ ce+tions
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TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3
TQ15. A/)# !: C'$ '() @'(4 As t)e audit manager& you #ound t)at com+any sta involved in t)e area o# cas) and %ank are generally com+etent and t)at general controls over cas) recei+ts and +ayments are also satis#actory2 ,2 Pre+are a su%stantive audit +rogram #or "as) at %ank to test t)e #ollo5ing assertions: a/ T)e amount o# cas) is not materially more t)an t)e amount s)o5n on t)e %alance s)eet2 %/ All cas) )as %een recorded2 c/ "as) is correctly s)o5n as a current asset2 d/ "as) is not restricted to non8current use2 32 Hse t)e audit +rogram you )ave +re+ared and +er#orm t)e necessary audit 5ork to veri#y cas) at %ank2 ;ou are given t)e #ollo5ing in#ormation to com+lete t)e audit o# cas) at %ank as at 3, (ecem%er& 013 .t)e in#ormation are #ound in t)e >cel Ele: TI,, -J$PA *T( "as) at 'ank 'ank Reconciliation/: A co+y o# t)e reconciliation #or t)e mont) o# (ecem%er& 013 .$c)edule A4/ $elected +ortions o# t)e cas) recei+ts .$c)edule A,/ and cas) dis%ursements ournals .$c)edule A/ ;ou )ave received directly #rom t)e %anks t)e conErmation and cut8 o %ank statements t)at you re@uested #or& on Banuary & 014: T)e cut8o %ank statements #or t)e +eriod #rom Banuary , to Banuary ,& 014 .$c)edule A3/ •
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•
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Assume t)at c)e@ues 5ritten in (ecem%er and not s)o5n as +resented on t)e cut8o %ank statement 5ere cleared on t)e (ecem%er %ank statement2 T)e #ollo5ing 5orking +a+ers 5ere +re+ared #or you %y t)e client or o%tained directly #rom t)e %ank2 T)ey are included #or your use .re#er to t)e >cel s+reads)eets +rovided/2
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STANDARD FORM TO CONFIRM ACCOUNT @ALANCE INFORMATION JIT FINANCIAL INSTITUTIONS O"(' 1 To %e mailed to t)e Auditor "ustomer Kame: VOSPA LTD
@ C# N'#!(' @'(4 Q/%%( S# A/*4'() Please +rovide our Auditors t)e #ollo5ing in#ormation as at 3,2,2013& regarding our de+osit and loan %alances2 Please conErm t)e accuracy o# t)e in#ormation& noting any e>ce+tions to t)e in#ormation +rovided2 t)e %alances )ave %een le#t %lank& +lease com+lete t)is #orm %y #urnis)ing t)e %alance in t)e a++ro+riate s+ace %elo52O Alt)oug) 5e do not re@uest nor e>+ect you to conduct a com+re)ensive& detailed searc) o# your records& it during t)e +rocess o# com+leting t)is conErmation additional in#ormation a%out ot)er de+osit and loan accounts 5e may nave 5it) you comes to your attention& +lease include suc) in#ormation %elo52 Please use t)e enclosed envelo+e to return me #orm directly to our accountants2
0heila 1e''$ 2anuary *$ *% ."ustomerOs Aut)oriNed $ignature/ Please return t)is #orm directly to our accountants:
,2 At t)e close o# %usiness on t)e date listed a%ove& our records indicated t)e #ollo5ing de+osit %alance.s/: A""JHKT KAM -os+a *td
A""JHKT KJ2 CF8439
KTR$T RAT
'A*AK"O
KLA
4,C&64
2 e 5ere directly lia%le to t)e Enancial institution #or loans at t)e close o# %usiness on t)e date listed a%ove as #ollo5s:
A""JHKT KJ2L
'A*AK"O V
(AT (H
KTR$T RAT
(AT T
3
T)e in#ormation +resented a%ove is in agreement 5it) our records2 T)ere are no other de+osits or loan accounts )ave come to our attention e>ce+t as noted %elo52
Bill Churchill 4inancial Institution Authorised 0i nature
0
Tutorial (iscussion Iuestions E-CEPTIONS AND COMMENTS KJK
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Tutorial (iscussion Iuestions
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3 R%') ISA N 50. Auditing accounting estimates$ including fair value accounting estimates and related disclosures and N IAS 37. Provisions& "ontingent *ia%ilities and "ontingent Assets %e#ore attem+ting t)e #ollo5ing @uestions
TQ20. A/)# !: P"!?!( :!" C!(#(%(# L',#% -os+a *td +roduces to>ic 5aste as a %y8+roduct o# t)e e5ellery manu#acturing +rocess2 T)e 5aste is stored in a s+ecial 5are)ouse in a to5n a%out one kilometer #rom )angarei2 T)e +eo+le living in t)e to5n )ave recently e>+ressed dou%ts a%out t)e sa#ety o# t)e storage #acility %ut -os+a *td claims t)at t)e risks are lo5er t)an t)ose t)at government regulations +ermit2 Q/%#!(. a2 )at are t)e issues you 5ould 5is) to consider in t)is case? )at @uestions 5ould you ask? Assume t)at one mont) %e#ore t)e year end& a lorry carrying 5aste on %e)al# o# -os+a *td )it t)e gate +ost o# t)e s+ecial 5are)ouse& and t)e 5aste s+illed and ran into a river running t)roug) t)e near%y to5n2 Q/%#!( %2 )at matters 5ould you consider in deciding i# a +resent o%ligation e>ists? c2 As t)e auditor o# -os+a *td& 5)at actions do you t)ink s)ould %e taken to decide i# t)ere is a legal or constructive o%ligation? d2 )at audit ste+s 5ould you take to determine t)e amount o# t)e o%ligation& i# any? Assume t)at -os+a *td )ad decided to set u+ a +rovision o# ,&000&000 as at 3, (ecem%er 013 #or o%ligations arising #rom t)e to>ic 5aste s+illage .t)e event/2 Q/%#!(. a2 ic 5aste matter against t)e +rovision2 Q/%#!(. %2 Assuming t)at you )ave satisEed yoursel# t)at t)e amount o# t)e over8+rovision )as %een +ro+erly determined& )o5 5ould you
Tutorial (iscussion Iuestions advise management a%out t)is matter? ould you %e concerned t)at t)e estimates at t)e +revious year8end )ad turned out to %e su%stantially 5rong?
TE AUDIT OF VOSPA LTD F!" #$% %'" %()%) 31 D%*%+,%" 20-3 Read ISA N 700: 4orming an opinion and reporting on 4inancial 0tatements ISA N 705: Modications to the opinion in the independent auditor’s report; ISA N 706: 5mphasis of matter paragraphs and other matters paragraphs in the independent auditor’s report %e#ore attem+ting t)e @uestions2
TQ22. A/)# R%!"#( -os+a *tds Enancial re+ort #or t)e year ended 3, (ecem%er 013 disclosed a note a%out a claim #or com+ensation o# C0 000 #rom t)e neig)%ouring com+any #or to>ic 5aste leakage on t)eir +ro+erty .re#er to TQ20. Audit of Provision for 6ontingent 7ia'ilities/ T)e directors )ave not recognised t)e lia%ility in t)e 'alance $)eet as t)ey %elieve t)e claim can %e success#ully de#ended2 T)is matter )o5ever )as %een ade@uately accounted #or and +ro+erly disclosed in t)e Dinancial Re+ort2 nde+endent legal advice soug)t %y t)e auditors indicated t)at t)e legal case could %e decided eit)er 5ay and t)at t)e amount o# com+ensation is uncertain2 T)e case is due #or )earing in Bune 0142 An e>tract o# -os+a *tds 'alance $)eet and ProEt and *oss Account as at 3, (ecem%er 013 s)o5ed t)e #ollo5ing: SARE CAPITAL AND RESERVES
1 250 000
Re+resented %y: Di>ed Assets "urrent Assets Kon8current *ia%ilities "urrent *ia%ilities NET ASSETS
3 600 000 , 600 000 4C0 000 , C00 000
C 00 000
3 9C0 000 1 250 000
REVENUE STATEMENT J+erating +roEt %e#ore ta> ncome ta> e>+ense J+erating +roEt a#ter Ta>ation Accumulated losses at , Banuary 013 RETAINED EARNINGS AT 31 DECEM@ER 20-3 3
900 000 ., 400 000/ , C00 000 .900 000/ 600 000
Tutorial (iscussion Iuestions
;ou s)ould assume t)at t)e com+any 5ill not receive a ta> deduction #or any damages +aid2 REQUIRED. ,2 $tate 5it) reasons& t)e audit o+inion you 5ould give #or t)e a%ove situation2 )at 5ould you disclose in t)e audit re+ort? 2 (iscuss t)e %asis #or t)e audit re+ort& giving also t)e audit re+ort disclosure re@uirement i#: 2,2 T)e matter )as %een ade@uately accounted #or and +ro+erly disclosed in t)e Enancial re+ort& and t)e amount o# t)e claim 5as 7C0 0002 22 T)e directors re#used to make any disclosure o# t)e claim o# C0 0002 232 T)e auditors are +revented #rom o%taining sucient evidence to give an o+inion on t)is matter o# uncertainty: T)e amount o# t)e claim is C0 000 T)e amount o# t)e claim is 7C0 000 • •
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Tutorial (iscussion Iuestions
C
