FC 2020 Exam Section B Questions assdd PDF

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ACCTG312 SECTION B BOOKLET

THE UNIVERSITY OF AUCKLAND SEMESTER ONE 2020 Campus: City ACCOUNTING Auditing Section B

EMAIL ADDRESS (Username)

@aucklanduni.ac.nz

(Time allowed: TWO hours) NOTE: 1.

Answer ALL questions: Section B contains questions 41 - 43.

2.

Answer each question in the space provided below the question.

3.

If you require additional answer pages, an overflow page is provided on page 14 of this booklet, however you must clearly indicate that you have used the overflow page otherwise your answer will not be marked . Within the regular space for that answer, you must provide a clear indication that your answer is continued on the overflow page e.g., “Answer is continued on overflow page”. Write neatly and legibly. Use a dark ink that does not show through the paper. HAND IN THIS ENTIRE BOOKLET AT THE END OF THE EXAM

ACCTG312 SECTION B BOOKLET

Question 41: Audit Reports and Auditing Issues Some parts of this question make reference to the audit report of Truscreen Limited, attached. You should review the report, and consider issues related to audit reports, corporate governance, the expectation gap and self-regulation. Attachment: https://canvas.auckland.ac.nz/courses/46200/files/5024563/download?download_frd=1 Required (a) Explain what type of audit opinion is the Truscreen audit report. (Maximum 30 words). (2 marks)

ACCTG312 SECTION B BOOKLET

(b) Discuss what information the Truscreen audit report provides to users that is different from the standard form of report. Why do the audit standards require that information to be included? (Maximum 200 words) (6 marks)

ACCTG312 SECTION B BOOKLET

(c) The Truscreen audit report also includes Key Audit Matters (KAMs). In what way do KAMs add value to the audit report? Explain why the KAM headed “Impairment assessment of definite life intangible assets” is included. (Maximum 200 words). (4 marks)

ACCTG312 SECTION B BOOKLET

(d) KAMs are also important in the interaction between the auditor and the audit committee. Explain the function of an audit committee and why KAMs are important to them. (Maximum 200 words). (5 marks)

ACCTG312 SECTION B BOOKLET

(e) Recent changes to the standard audit report were intended to address the problem of the audit expectation gap. What component of the audit expectation gap is the audit report likely to be able to address? Why is this component of the expectation gap difficult to overcome? (Maximum 200 words). (5 marks)

ACCTG312 SECTION B BOOKLET

(f) Changes to the auditing standards, and enforcement of them, are part of the system of co-regulation of auditing in New Zealand. Explain what co-regulation of auditing in New Zealand means. (Maximum 350 words). (8 marks)

Total 30 marks

ACCTG312 SECTION B BOOKLET

Question 42: Business risk, inherent risk, control risk and detection risk You are the auditor of Michael Healey Jewellers. As part of your procedures to understand the entity you ask the CEO, Richard Hill, a few questions. You are particularly interested in what he has to say about inventory. He admits that this year has been especially difficult, not only due to the lockdown situation but also due to some naïve management decisions made before that period. Despite the business being able to access the wage subsidy he is concerned about whether the company will survive.

Richard stated that the purchasing department procured a new range of rings that were overpriced by the supplier, and he is unsure if the business will be able to sell them in the current environment. He also admits that the inventory stock take was not well supervised and that they used inexperienced people to count and value the inventory. He ended the conversation in a hushed tone and suggested that you should treat inventory as a low risk item.

Required (a) Briefly explain the implications of business risk for auditors. (Maximum 150 words).

(3 marks)

ACCTG312 SECTION B BOOKLET

(b) What impact do inherent risk and control risk have on the auditors’ work? (Maximum 100 words).

(2 marks)

(c) What should the planned detection risk be set at in the audit of Michael Healey Jewellers? What impact will that have on the auditors’ work and sample size? (Maximum 200 words).

(4 marks)

ACCTG312 SECTION B BOOKLET

Question 42 (c) continued

(d) Provide three examples of the impact on audit effort discussed in (c). (Maximum 150 words).

(3 marks)

ACCTG312 SECTION B BOOKLET

(e) When planning the audit strategy, would you use test of controls or a more substantive approach? Explain your decision. (Maximum 100 words). (2 marks)

(f) Identify the category of internal control weakness and issue of concern that seems most evident in this scenario. (Maximum 30 words). (1 mark)

Total 15 marks

ACCTG312 SECTION B BOOKLET

Question 43: Accounts Receivable The audit firm, Leung and Bennett, are auditing the accounts receivable of East Auckland Suppliers Limited. The client provides them with the following accounts receivable listing: Accounts Receivable as at 30 June 2020 Account

Balance

Panmure Enterprise

$15,009.89

Elleslie Bakeries

$8,000.00

Pakuranga Distributors

$5,948.62

Howick Group

$252.00

Glendowie Eateries

$12,336.48

St Johns Bakehouse

$6,789.00

Total

$48,325.99

Leung and Bennett are unaware that there are several misstatements in the accounts receivable list. •

Panmure Enterprise is a receivable that has been transferred to a debt collection agency who have already paid East Auckland Suppliers for it.

• •

Elleslie Bakeries is a fake account to conceal a fraud. (cooking the books) Pakuranga Distributors has gone bankrupt and it is unlikely that any money will be recovered. Howick Group is a customer who paid a portion of the account just before balance date, but the transaction has not yet been recorded. Glendowie Eateries is a customer how received a refund of 20% on their account but this should have been 25%. St Johns Bakehouse is a creditor and should not be included in the accounts receivable list.

• • •

Required (a) What type of tests can Leung and Bennett use if they use a predominantly substantive approach? (Maximum 30 words). (1 mark)

ACCTG312 SECTION B BOOKLET

(b) For each of the six accounts and the total receivable account balance, state which financial report assertion is not correct. (Use the table below to answer this question). (7 marks) (c) For each of the six accounts and the total receivable account balance, what audit procedure would be most likely to detect that the assertion is not correct? (Use the table below to answer this question – maximum of 10 words per row). (7 marks)

Format of Table to be used for answers to questions (b) and (c) Account

Assertion

Audit Procedure/s

(1 mark each)

(1 mark each)

Panmure Enterprise

Elleslie Bakeries

Pakuranga Distributors

Howick Group

Glendowie Eateries

St Johns Bakehouse

Accounts Receivable Balance

Total 15 marks

ACCTG312 SECTION B BOOKLET

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