1 Assessment Task – Tutorial Questions Assignment Unit Code: HA3032 Unit Name: Auditing Assignment: Tutorial Questions Assignment (Individual) Due: Week 13 - Friday 16th October XXXXXXXXXX:30PM)...

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1 Assessment Task – Tutorial Questions Assignment Unit Code: HA3032 Unit Name: Auditing Assignment: Tutorial Questions Assignment (Individual) Due: Week 13 - Friday 16th October 2020 (11:30PM) Weighting: 50% Total Mark: 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. Demonstrate a thorough understanding of the reporting requirements of auditing standards relating to auditors’ reports. 2. Explain how the audit planning process directs the auditor to obtain adequate evidence to support audit findings and address the importance of materiality in an audit. 3. Explain the process of audit planning to determine risk assessments and an overall audit strategy. 4. Explain the auditors’ obligations with regards to understanding the client’s business and internal controls and assessing business risks. 5. Achieve a high level of competence in applying prescribed auditing techniques in gathering evidence to satisfy audit assertions. 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 from weeks 3 ,4 ,5 ,6 ,7 & 11 inclusive and submit these answers in a single document. 2 The questions to be answered are: Question 1 (7 marks) (This question is from the Week 3 Tutorial) You have reviewed the work performed by your assistant, Raymond Snow, on the audit of Tin Ltd for the year ended 30 June 20X8 and you have noted the following two independent matters: (i) In testing investments in listed securities, Raymond selected all shareholdings with a market value above $200,000 and checked them to the closing market value reported by the Australian Stock Exchange (ASX) to determine the net realisable value of each shareholding. The items tested totaled $5,500,000 or 60% of the total balance. Of the items tested, only one error of $110,000 was discovered. Raymond concluded that the error was not itself material, as it was only 2% of the balance tested. He extrapolated this error to the total population and estimated that the error for the total population would be $185,000, which was also immaterial. Therefore, he concluded that the investments in listed securities were fairly stated at the lower of cost or net realisable value. (ii) Tin Ltd has 1,000 stock lines that are maintained on a perpetual inventory system. Stock is counted on a cyclical basis so that all lines are covered at least once per year. Raymond attended the March stocktake to observe the counting procedures and conducted 20 test counts from the floor to the client’s count sheets and 20 from the client’s count sheets to the floor. He uncovered two minor discrepancies of one item each, which he considered to be immaterial. The client also uncovered five minor discrepancies between the perpetual records and the actual quantity on hand. None of these discrepancies were adjusted on the perpetual records, as the amounts involved only totaled $50,000 and were considered to be immaterial. Raymond concluded that no further work was considered necessary on stock quantities at year end. Required: (a) In your own words, explain what is meant by sufficient appropriate audit evidence. (2 marks) (b) Explain whether sufficient appropriate audit evidence has been obtained for each of the above situations. Give reasons for your answer. (5 marks) (Word Limit: Minimum of 250 words. Maximum of 300 words) 3 Question 2 (7 marks) (This question is from the Week 4 Tutorial) The following financial ratios have been calculated for Nova Ltd for the year ended 30 June 2008: Ratio Actual results Budgeted results Previous year Industry Average Current ratio 1.97 1.92 1.87 1.92 Quick asset ratio 1.06 1.06 1.06 1.11 Inventory turnover 4.21 4.91 4.86 4.76 Net profit ratio 0.05 0.03 0.03 0.03 Gross margin 0.65 0.59 0.61 0.61 Required: Provide four (4) possible explanations for the results of the various ratios for Nova Ltd and explain their implications for the audit. (7marks) (Word Limit: Minimum of 200 words. Maximum 250 of words) Question 3 (7 marks) (This question is from the Week 5 Tutorial) Everyday Supplies Pty Ltd is a single-store retailer that sells a variety of tools, garden supplies, timber, small appliances, and electrical fixtures to the public, although about half of Everyday Supplies’ sales are to construction contractors on account. Retail customers pay for merchandise by cash or credit card at cash registers when merchandise is purchased. A contractor may purchase merchandise on account, if approved by the credit manager based only on the manager’s familiarity with the contractor’s reputation. After credit is approved, the sales associate files a prenumbered charge form with the accounts receivable supervisor to set up the receivable. The accounts receivable supervisor independently verifies the pricing and other details on the charge form by reference to a management - authorised price list, corrects any errors, prepares the invoice, and supervises a part-time employee who mails the invoice to the contractor. The accounts receivable supervisor electronically posts the details of the invoice in the accounts receivable subsidiary ledger; simultaneously, the transaction’s details are transmitted to the bookkeeper. The accounts receivable supervisor also prepares a monthly computer-generated accounts receivable subsidiary ledger without a reconciliation with the accounts receivable control account and a monthly report of overdue accounts. 4 The cash receipts functions are performed by the cashier, who also supervises the cash register clerks. The cashier opens the mail, compares each cheque with the enclosed remittance advice, stamps each cheque “for deposit only”, and lists cheques for deposit. The cashier then gives the remittance advices to the bookkeeper for recording. The cashier deposits the cheques daily, separate from the daily deposit of cash register receipts. The cashier retains the verified deposit slips to assist in reconciling the monthly bank statements, but forwards to the bookkeeper a copy of the daily cash register summary. The cashier does not have access to the journals or ledgers. The bookkeeper receives the details of transactions from the accounts receivable supervisor and the cashier for journalising and positing to the general ledger. After recording the remittance advices received from the cashier, the bookkeeper electronically transmits the remittance information to the accounts receivable supervisor for subsidiary ledger updating. The bookkeeper sends monthly statements to contractors with unpaid balances upon receipt of the monthly report of overdue balances from the accounts receivable supervisor. The bookkeeper authorises the accounts receivable supervisor to write off accounts as uncollectible when six months have passed since the initial overdue notice was sent. At this time, the credit manager is notified by the bookkeeper not to grant additional credit to that contractor. Required: Describe five (5) internal control weaknesses in Everyday Supplies’ internal control for the cash receipts and billing functions (5 marks) and explain why they are weaknesses for two (2) that you have identified. (2 marks) (Word Limit: Minimum of 550 words. Maximum of 600 words) Question 4 (7 marks) (This question is from the Week 6 Tutorial) During your review of the audit field work completed by a new junior employee of the audit firm, John Smith, you have noted many areas which require additional review notes. John, who has just completed the interim audit of Taxon Ltd for the year ended 30 June 2019, has just performed testing of controls. When testing controls over payments made to related parties, there should be evidence of approval and sign-off by the chief financial officer (CFO). John selected a sample of payments made to related parties and vouched them back to the electronic funds transfer (EFT) forms to sight the CFO’s signature of approval. Based on a sample of ten payments, six had been approved by the CFO in writing. However, the remaining four EFT forms (for immaterial amounts) did not have the CFO’s signature, but John noted that the CFO had given verbal approval. John concluded that because all internal controls were working, the audit team could use analytical procedures alone to audit payments made to related parties. Required: Based on the results of the testing of controls outlined above, determine whether John has arrived at the appropriate conclusion? (1 mark) Justify your answer by addressing the following areas: the risks associated with related party transactions, and the reliability of controls at Taxon Ltd. (6 marks) (Word Limit: Minimum of 150 words. Maximum of 600 words) 5 Question 5 (11 marks) (This question is from the Week 7 Tutorial) Magi Chen is the managing director of Sun Construction Pty Ltd,
Answered Same DayOct 05, 2021HA3032

Answer To: 1 Assessment Task – Tutorial Questions Assignment Unit Code: HA3032 Unit Name: Auditing Assignment:...

Pranjal answered on Oct 11 2021
140 Votes
HA3032 AUDITING
Table of Contents
Question 1    3
Part a)    3
Part b)    3
Question 2    3
Question 3    4
Question 4    5
Question 5    6
Question 6    6
References    9
Question 1
Part a)
Sufficient appropriate audit evidence denotes that the auditor is able to evaluate the internal control of the company on the basis of the gath
ered audit evidence, based upon which the nature, extent and timing of audit procedure may accordingly be determined (Saadullah and Elsayed, 2020).
Part b)
In the given scenario, it may be stated that the appropriate audit evidences have bene obtained for all three examples.
Question 2
Current ratio of 1.97 shows that the business is having sufficient liquidity and the same has increased from previous year’s figure of 1.87. It also denotes the fact that the busines sis having enough current assets to liquidate to pay-off the short-term payment obligations and still enjoy the enough liquid assets to run the daily routine operations of the business.
However, an insight into the quick ratio of 1.06 as against the industry average of 1.11 shows that the business is having more inventory as compared to industry average and hence, the liquify of the busines largely depends on the inventory as compared to other industry payers in the field.
Also, the gross margin figure of the company shows that the management has been able to surpass the industry standard of throughput generation. However, if the gross profit is looked upon along with the net profit margin of 5%, it shows that the cost structure of the company is so substantial that it consumes most of the revenue.
However, the net profit of 5%, as compared to budgeted margin of 3% and also the industry average of 3% may establish the strong profitability position of the business, among the industry. Also, the same denotes the fact that the management has been able to efficiently manage the revenue against the budget set for the purpose.
Question 3
The given scenario is about analysing the instant internal control operations as may be explained in the case study. An insight into the given data set and information may reveal that the company management has not been able to maintain an efficient and effective internal control as far as its receivable policies sets are concerned. The section below highlights some of the key limitations and drawbacks of the given internal control system of the company.
First of all, credit limit of each accounts receivable is being determined on the basis of the personal reputation and managers’ familiarity with them. There seems to be no clear-cut policy set for the purpose of approving the credit limit by the managers.
Secondly, the pricing policy also seems to be faulty. The management determines the price and the accounts receivable super visor just performs routine checking without checking the veracity of the pricing agreed with the parties.
Thirdly, the cash receipts functions are performed by the cashier who also supervises the cash register clerks. The clerks are not able to record the data independently.
In addition, the bookkeeper does not update the subsidiary ledger rather he sends the information to the accounts receivable...
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