Assessment Task – Tutorial Questions Unit Code: HI6026 Unit Name: Audit, Assurance and Compliance Assignment: Tutorial Questions 2 Due: 11:30pm 26th June 2020 Weighting: 25% Total Assignment Marks: 50...

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Assessment Task – Tutorial Questions Unit Code: HI6026 Unit Name: Audit, Assurance and Compliance Assignment: Tutorial Questions 2 Due: 11:30pm 26th June 2020 Weighting: 25% Total Assignment Marks: 50 marks Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit Unit Learning Outcomes Assessed: 1. Understand the audit planning procedures, evaluate the business risk and assess the internal control 2. Prepare auditing procedures for transactions and balances by conducting control and substantive tests 3. Understand the auditor’s reporting obligations and events after the balance date. Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 6 to 10 inclusive and submit these answers in a single document. The questions to be answered are: Q1 - Week 6 As the auditor of Komsu Air Limited (KAL) that manufactures and installs large commercial air- conditioning systems. KAL typically has two or three large contracts (ranging from $6 million to $10 million each) in progress at any one time. The contracts usually take up to six months to complete, although unexpected on-site difficulties can result in lengthy delays in completion (of up to 12 months). KAL finances its operations with a mixture of equity, long-term debt (secured by fixed assets) and short-term bank loans. It is now May 2017 and your planning of the audit of KAL for the year ended 30 June 2017 is nearing completion. You have met with the management of KAL and, from those discussions and a review of the preliminary information provided by KAL, you have identified several issues that may have implications for the company’s ability to continue as a going concern. The relevant issues are as follows:  Competition in the industry is becoming more intense, with some customers now installing their own systems.  KAL’s bank has requested cash flow forecasts for the coming year to support the short-term loans. It has indicated that it may need to withdraw funding or restructure debt if the forecasts are not adequate. The review of work-in-progress indicates that all the contracts in progress at year end are due for completion within six months of the balance date. There are no new contracts in place for the coming year, although management has indicated that there are orders currently being negotiated. The nature of the business is such that sales will fluctuate considerably from year to year depending on the timing of one or two large contracts.  Assets consist chiefly of plant and equipment, some of which is specialised to the industry. Debtors are significant, but recoverability is not considered an issue as the ongoing projects are with reputable customers and management is not aware of any problems. Creditor balances are at normal levels, and the company is in a positive working capital position.  Included in provisions is a large provision for warranty for one of KAL’s jobs completed at a hotel two years ago. It appears that the air-conditioning system is still not working and the hotel is now requesting a substantial refund of the contract price. Required: Explain whether you believe the area of going concern should be assessed as high risk and mitigating factors for KAL’s audit for the year ended 30 June 2017. (10 marks, maximum 300 words) Appropriateness of Going Concern (5 marks) Mitigating Factors (5 marks) Financial/ Operational/ Other Indicators Q2- Week 7 Wares king supplies custom-fitted curtains and blinds to retail customers. It has recently expanded to offer a wide variety of home decorating products through its six stores across the state. After some initial problems with stock control it installed a new automated inventory system in April this year. The system replaced another automated system that had been modified so often over the years that the auditor had advised Wares’s management that they did not regard it as reliable. That is, the auditor was unable to rely on the old system sufficiently to assess control risk for inventory as anything less than high. Required: a) Explain the normal process an auditor would expect to find in the client’s systems governing changes to computer programs. Why is an auditor concerned about program changes? (3 marks, maximum 100 words) b) Wares kings’ financial year-end is 31 December. Does the auditor need to obtain evidence about the performance of the inventory control system from every month in the year or from a sample of months? Explain. (3 marks, maximum 100 words) c) If the auditor conducts test of the inventory controls at an interim date, is it appropriate to conclude that the controls also relate to the end of period date? Why? (4 marks, maximum 150 words) No Table is required Q3- Week 8 You are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem, Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic components to Vesta Tech Ltd through his private company. There is no formal agreement in place with Jonathon Marshall, however, the goods are being provided at competitive prices. You are concerned about the electronic components that Jonathon Marshall’s company is supplying, because his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining that they are of poor quality. The board has informed you that although sales have been strong this year, Vesta Tech Ltd has suffered significant cash flow problems because a major debtor, Mimosa Ltd, is experiencing financial difficulties. As a result, Mimosa Ltd is taking well over 120 days to pay outstanding amounts, despite Mimosa Ltd’s terms of trade being payment within 30 days. Mimosa Ltd makes up 40 per cent of Vesta Tech Ltd’s sales and the board has been reluctant to take any action that might adversely affect those sales. As a result, Vesta Tech Ltd has had to increase its dependency on its line of credit, and this has caused it to temporarily breach the debt to equity ratio required in its loan covenant with WestPac Bank Ltd. The management of CGL is currently reviewing the structure of its audit committee to ensure that it complies with the requirements of the ASX Corporate Governance Principles and Recommendations. However, the board is confused by the reference in the ASX Corporate Governance Principles and Recommendations to both independent directors and non-executive directors, as they thought that they were the same thing. As a result, they have sought your advice concerning the structure of their audit committee. Required: a) Identify two key account balances at risk of material misstatement. (2 marks) b) For each account balance identify the key assertion at risk. (2 marks) c) Explain why the account balance and assertion are at risk. (2 marks, maximum 100 words) d) Describe one (1) substantive test of detail that you would undertake for each account to address the assertion and risk identified. (4 marks, maximum 200 words) (a) Key account balance at risk: (b) Key assertion at risk: (c) Explanation: (d) Substantive test of detail/ Audit Process Q4 - Week 9 a) What are key audit matters? How do these affect the format of the audit report? (2 marks, maximum 200 words) b) Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows. (a) The board is planning to issue shares in a private placement on 15 August. (2 marks) (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (2 marks) (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant in the 1990s. This is the tenth such writ lodged, and the client has denied responsibility in all cases because it was unreasonable to believe at that time that these chemicals had adverse health effects. The claimant has new scientific evidence that counters this defence. (2 marks) (d) The review of subsequent cash receipts has revealed that several of the trade receivables that were considered doubtful have now been paid. However, the audit procedures have shown that a large debtor that was considered safe at 30 June was unexpectedly declared bankrupt on 20 July. (2 marks) The year-end for the company is 30 June and the audit report is due to be signed on 20 August. Required: For each of the items above, explain what type of subsequent event it is and the appropriate treatment of the item in the financial report. (8 marks, maximum 300 words) Part A: Like an essay type presentation Part B: Issues Event/ Accounting Treatment (1 mark) Explanation (1 mark) (a)(/(b)/ Write 1
Answered Same DayJun 12, 2021HI6026

Answer To: Assessment Task – Tutorial Questions Unit Code: HI6026 Unit Name: Audit, Assurance and Compliance...

Harshit answered on Jun 22 2021
137 Votes
AUDIT, ASSURANCE AND COMPLIANCE
    Serial Number
    Contents
    Page Number
    1.
    Answer to Question 1
    1
    2.
    Answer to Question 2
    2
    3.
    Answer to Question 3
    3
    4.
    Answer to Question 4
    4-5
    5.
    Answer to Question 5
    6
    6.
    References
    7
ANSWER TO QUESTION 1
The area of going concern should be assessed as hig
h risk and mitigating factors for KAL’s audit for the year ended 30 June 2017 because of the following reasons:
    Appropriateness of Going Concern
    Mitigating Factors
    This is another indicator as there would be a decrease in the demand for the product and the competition will increase.
    The customers are installing the systems in their units which would decrease the demand for the product and the competition will increase.
    Financial indicators: As the company will not be able to maintain the cash flow to support the short-term loans of the company.
    The company has not been able to send the cash flow statement of the company and the restructuring of debt is important as the forecast of the company are not adequate. If the company can recover cash from the debtors and other current assets, the company will be able to generate enough cash flow for the short term loans.
    Operational Indicators: As the contracts that the company presently has are about to get over shortly and the company does not have any new contracts for the coming year.
    The company does not have any major contracts currently and the company has not been able to get any new contract although the management has indicated that the negotiations for two new contracts are going on but the company has not been able to secure any new major contract for a year which shut the operations of the company because of no demand. If the company can secure the major contracts along with two major contracts, the company would be able to mitigate the risk of the going concern
ANSWER TO QUESTION 2
(a) The auditor would expect to find documentation of the client about the computer program changes. If major amendments were made by the client to the computer programs, the discussion of this will reach the board level. The senior management will allow for the other mentioned changes as they find appropriate. The change in the level of authorization of the changes would be present in all the cases which would include complete documentation of the amendments as made the effects of the same on the client's reporting and operations. Over and above the documenting the amendments to the programs, the auditor would find a log of changes that may include the staff, the amendments, test data etc.
The auditors are concerned about the program amendments as they might introduce some errors to the program. The amendments could also mean that the auditor was not able to depend on the results of any prior testing by the auditor in the computer system in an audit.
(b) The effects of the sales and purchase transactions from the financial year are included in the financial statements of the company. The auditor should consider testing the controls separately if the computer programs have been changed during the year. The evidence is not required from every month of the year but the evidence should be present form before and after the installation of a new system in April. Test can be conducted...
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