BBAC601 Auditing and Assurance | My Assignment Tutor

1BBAC601Auditing and AssuranceTerm XXX, 2021Mock online final exam(2 hours and 15 minutes)Student Number: ______________________________________Total MARKS available 40 (worth 40 % of total subject assessment) PARTQUESTIONPOSSIBLEACTUALPART B1- 340TOTAL40 SPECIAL INSTRUCTIONS TO STUDENTS: There is no reading time. You can start writing once the exam starts. This is an ONLINE CLOSED BOOK exam. Any unauthorised materials/notes should beremoved from your room prior to exam start. There should be no sticky notes onyour computer or on the floor. There should be no handwriting on your body. This paper consists of 3 questions. Students should read the questions carefully. There are blank spaces for each question. Answers must be typed in the spaceprovided. Tables/Templates are inserted in the blank space to assist you in answeringquestions faster. You are required to submit your answer before the finishing time. To submit youranswer, click on “Finish Attempt” on the bottom right corner in your Moodle site,and then Submit ALL and Finish. If you do not submit your work, Moodle is set up toautomatically submit your work at the finishing time. You are not allowed to speak once the exam starts. If you have any questions, pleaseraise your hand. You should stay in sight of the webcam for the duration of the exam. You are not allowed to leave the room without seeking permission from the examinvigilator. Toilet breaks are permitted but permission must be sought from theinvigilator.2Question 1 (13 marks):1.1. In the audit of Seaholm Corporation (Seaholm), the auditor has collected the AgedTrial Balance (ATB) containing a list of customers and their corresponding amount they wereowing to Seaholm at the end of the financial year under the audit (all amounts are in $). Theauditor has sent confirmation letters to selected customers and the amount confirmed byeach customer is shown in the Table. AccountnumberCustomerATB Balance (30/6/2015) as perconfirmed by BalancecustomerDifference10111Alan Co500,000500,000011987Chels Ltd100,000100,000012678Fictional PublisherLtd23,705023,705 (*)26598Brown and White Co.Ltd2,000,0002,000,000030012Crist Enterprise620,000620,000044451Meay Co.Ltd20,00020,000048967Hiace Co.Ltd15,000NANA50982Swin Co.Ltd0NANA51234Melb Co, Ltd21,295NANA62358Blockbuster PublisherLtd0NANA68123Nature Lovers Pty Ltd13,309NANA75263Serenity0NANA91112Home Press Pty Ltd0NANA99882Balarat Copany2,000,0002,000,0000Total5,313,3095,289,60423,705 NA: confirmation letters were not sent to these customers.(*) Note: I (i.e. the auditor) have discussed with client and the client admitted that FictionalPublisher Ltd paid the whole amount of $23,705 before the year end, but the client forgot torecord the transaction.3Required:(a) You are asked to review the audit findings and suggest the appropriate type ofauditor’s opinion in this circumstance. State action (if any) and the auditor’s opinion ifyour auditor-in-charge has set a materiality level of $27,000 for the accountsreceivable account, given that there is no other misstatement discovered? (marks)(b) Would your decision in (a) change if the set materiality was $22,000 (marks)1.2 The following are independent and material situations:a) An auditor hires an actuary to assist in corroborating a client’s complexsuperannuation calculations concerning accrued superannuation liabilities thataccount for 35 percent of the client’s total liabilities. The actuary’s findings arereasonably close to the client’s calculations and support the financial report.b) An auditor is engaged to audit a client’s financial report after the annual physicalinventory count. The accounting records are not sufficiently reliable to enable theauditor to become satisfied as to the year-end inventory balances.(2 x marks)Required:For each of the above situations, indicate the appropriate type of audit opinion you wouldissue, as well as the reasons for issuing the particular audit opinion.Question 2 (15 marks):2.1 Following is the extracted description of sales and cash receipts for Baby’s Shop, a storedealing in expensive babies’ clothes. Sales are for credit only, using the store’s own creditsystem rather than credit cards.Customer orders are received and checked by an order clerk to make sure all theinformation is correct and goods is in hand. Orders that satisfy all criteria result in theproduction of a sales order that lists the goods ordered. The sales order is then forwarded tothe credit supervisor, who approves credit sale based on an approved list of criteria andnotes his approval on the sales order. The approved sales order will be sent to the salesdepartment.In the sales department, each sales clerk has their own sales book. Sales clerks prepare thesales invoices in four copies, which are not pre-numbered. The original copy is sent to4customer, the second one is given to James, the accountant, and the third one is given to thesupervisor. The fourth copy is retained by the sales clerk in the sales book. Each clerksummarises their sales each day on a daily summary form, which is used to calculate andrecord employees’ sales commissions.James, who also receives payment from customers, records the sales transactions into thefirm’s computerised accounting system based on the copy of invoice that he is given. Theaccounting provides a complete printout of all input and summaries. The accountingsummary includes sales by sales clerk and total sales. Jenny compares this output with thesupervisor’s and sales clerks’ summaries and reconciles all differences. The computer alsoupdates accounts receivable master file on a daily basis.Required: Based on the information available above:(a) Critically evaluate the strength of the client’s internal control over the sales andcollection cycle by identifying and explaining THREE (3) internal control activities present in the system.(marks)(b) For each internal control listed in (a), identify a financial report assertion that thecontrol addresses.( marks)(c) Critically evaluate the weaknesses of client’s internal control through theidentification and explanation of one (1) weakness in the sales system at Baby’sShop.( marks) 2.2 In auditing accounts payable, auditors are given a list of 1,000 suppliers with thetotal value of $30,000,000 and use their judgment to select the items with a value above$30,000.Required: Explain why this is or is not an example of audit sampling. If this is not anexample of audit sampling, state a sampling method that the auditor should use inchecking the above account. Indicate the population and sampling unit in your samplingmethod.5Question 3 (12 marks):3.1. In the audit of Reliable Printers Ltd. (RPL), you have collected the extracted financialstatements as below:Statement of financial position (extracted)Income statement (extracted) 2014 $2015 unaudited$unaudited $Revenue from operations37 699 50043 459 500Cost of sales31 620 00036 855 000Gross profit  6 079 500  6 604 500 (Adapted from Auditing and Assurance Services in Australia 6e by Gay & Simnett © McGrawHill Education (Australia) 2015)Assume you are a new auditor in this field and are asked by the auditor-in-charge to suggestthe suitable substantive tests for various accounts.Required:1. In relation to sales account: (marks)a. The auditor-in-charge has indicated to you that your team needs to focus onensuring that “There are no fictitious sales transactions recorded in the year sothat the sales is not overstated”. Which management assertion is addressed andwhich is an appropriate substantive test to confirm this.b. The auditor-in-charge has indicated to you that your team also needs to focus onensuring that “All sales transactions are recorded so that the sales is notunderstated”. Which management assertion is addressed and which is anappropriate substantive test to confirm this.c. The auditor-in-charge has indicated to you that your team also needs to focus onensuring that “The recorded sales only consist of the sales occurring in the 2015financial year and sales transactions occurring in 2016 financial year are recorded 2014 $2015 unaudited $Current assetsAccounts receivable4 320 0005 073 309Gross value4 530 0005 313 309Allowance for doubtful debts(210 000)(240 000) 6in the 2016 financial year”. Which management assertion is addressed and whichis an appropriate substantive test to confirm this.d. The auditor-in-charge has indicated to you that your team also needs to focus onensuring that “The amount of sales transactions is recorded correctly”. Whichmanagement assertion is addressed and which is an appropriate substantive testto confirm this.2. In relation to account receivable account: (marks)a. The auditor-in-charge has indicated to you that your team needs to focus onensuring that “The amount listed on the account receivable trial balance at theyear-end is the actual amount that customers were owing to the client”. Whichmanagement assertion is addressed and which is an appropriate substantive testto confirm this.b. The auditor-in-charge has indicated to you that your team needs to focus onensuring that “Account receivable is stated at the net realisable value inaccordance with accounting standards”. Which management assertion isaddressed and which is an appropriate substantive test to confirm this.3.2 You have been approached by your client Natural Oils Ltd to undertake the followingengagementsThe Australian Government has introduced the Competition and Consumer (Industry Codes—Natural Cosmetics) Act 2017 (the Act), which is effective for the year ended 30 June 2018.The Act introduces a code covering the relationship between retailers and their directsuppliers. As a cosmetics retailer, Natural Oils is required to comply with this Act.Under the Act, the cosmetics retailer must enter into a supply agreement. The agreementmust be in writing and be retained by the retailer. In addition, the retailer must submit areport to the Australian Consumer and Competition Commission (ACCC) detailing itscompliance with the code. The Act states that the report must be reviewed by an assurancepractitioner.Required:With reference to auditing and assurance standards, write a letter addressing the Board ofDirector of Natural Oils advising them of the appropriate type of assurance engagement thatyou should undertake for each of the situations above and the level of assurance provided,the benchmark that the auditor should use. ( marks)END OF EXAM

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