ZXC Co currently has income of $30 million per year, of which 80% is from credit sales, an

第1题

5 You are the audit manager for three clients of Bertie & Co, a firm of Chartered Cert

ified Accountants. The financial

year end for each client is 30 September 2007.

You are reviewing the audit senior’s proposed audit reports for two clients, Alpha Co and Deema Co.

Alpha Co, a listed company, permanently closed several factories in May 2007, with all costs of closure finalised and

paid in August 2007. The factories all produced the same item, which contributed 10% of Alpha Co’s total revenue

for the year ended 30 September 2007 (2006 – 23%). The closure has been discussed accurately and fully in the

chairman’s statement and Directors’ Report. However, the closure is not mentioned in the notes to the financial

statements, nor separately disclosed on the financial statements.

The audit senior has proposed an unmodified audit opinion for Alpha Co as the matter has been fully addressed in

the chairman’s statement and Directors’ Report.

In October 2007 a legal claim was filed against Deema Co, a retailer of toys. The claim is from a customer who slipped

on a greasy step outside one of the retail outlets. The matter has been fully disclosed as a material contingent liability

in the notes to the financial statements, and audit working papers provide sufficient evidence that no provision is

necessary as Deema Co’s lawyers have stated in writing that the likelihood of the claim succeeding is only possible.

The amount of the claim is fixed and is adequately covered by cash resources.

The audit senior proposes that the audit opinion for Deema Co should not be qualified, but that an emphasis of matter

paragraph should be included after the audit opinion to highlight the situation.

Hugh Co was incorporated in October 2006, using a bank loan for finance. Revenue for the first year of trading is

$750,000, and there are hopes of rapid growth in the next few years. The business retails luxury hand made wooden

toys, currently in a single retail outlet. The two directors (who also own all of the shares in Hugh Co) are aware that

due to the small size of the company, the financial statements do not have to be subject to annual external audit, but

they are unsure whether there would be any benefit in a voluntary audit of the first year financial statements. The

directors are also aware that a review of the financial statements could be performed as an alternative to a full audit.

Hugh Co currently employs a part-time, part-qualified accountant, Monty Parkes, who has prepared a year end

balance sheet and income statement, and who produces summary management accounts every three months.

Required:

(a) Evaluate whether the audit senior’s proposed audit report is appropriate, and where you disagree with the

proposed report, recommend the amendment necessary to the audit report of:

(i) Alpha Co; (6 marks)

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第2题

Robber Co manufactures control panels for burglar alarms, a very profitable product. Every

product comes with a one year warranty offering free repairs if any faults arise in this period.

It currently produces and sells 80,000 units per annum, with production of them being restricted by the short supply of labour. Each control panel includes two main components – one key pad and one display screen. At present, Robber Co manufactures both of these components in-house. However, the company is currently considering outsourcing the production of keypads and/or display screens. A newly established company based in Burgistan is keen to secure a place in the market, and has offered to supply the keypads for the equivalent of $4·10 per unit and the display screens for the equivalent of $4·30 per unit. This price has been guaranteed for two years.

The current total annual costs of producing the keypads and the display screens are:

Notes:

1. Materials costs for keypads are expected to increase by 5% in six months’ time; materials costs for display screens are only expected to increase by 2%, but with immediate effect.

2. Direct labour costs are purely variable and not expected to change over the next year.

3. Heat and power costs include an apportionment of the general factory overhead for heat and power as well as the costs of heat and power directly used for the production of keypads and display screens. The general apportionment included is calculated using 50% of the direct labour cost for each component and would be incurred irrespective of whether the components are manufactured in-house or not.

4. Machine costs are semi-variable; the variable element relates to set up costs, which are based upon the number of batches made. The keypads’ machine has fixed costs of $4,000 per annum and the display screens’ machine has fixed costs of $6,000 per annum. Whilst both components are currently made in batches of 500, this would need to change, with immediate effect, to batches of 400.

5. 60% of depreciation and insurance costs relate to an apportionment of the general factory depreciation and insurance costs; the remaining 40% is specific to the manufacture of keypads and display screens.

Required:

(a) Advise Robber Co whether it should continue to manufacture the keypads and display screens in-house or whether it should outsource their manufacture to the supplier in Burgistan, assuming it continues to adopt a policy to limit manufacture and sales to 80,000 control panels in the coming year. (8 marks)

(b) Robber Co takes 0·5 labour hours to produce a keypad and 0·75 labour hours to produce a display screen. Labour hours are restricted to 100,000 hours and labour is paid at $1 per hour. Robber Co wishes to increase its supply to 100,000 control panels (i.e. 100,000 each of keypads and display screens). Advise Robber Co as to how many units of keypads and display panels they should either manufacture and/or outsource in order to minimise their costs. (7 marks)

(c) Discuss the non-financial factors that Robber Co should consider when making a decision about outsourcing the manufacture of keypads and display screens. (5 marks)

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第3题

You are an audit manager responsible for providing hot reviews on selected audit clients w

ithin your firm of Chartered

Certified Accountants. You are currently reviewing the audit working papers for Pulp Co, a long standing audit client,

for the year ended 31 January 2008. The draft statement of financial position (balance sheet) of Pulp Co shows total

assets of $12 million (2007 – $11·5 million).The audit senior has made the following comment in a summary of

issues for your review:

‘Pulp Co’s statement of financial position (balance sheet) shows a receivable classified as a current asset with a value

of $25,000. The only audit evidence we have requested and obtained is a management representation stating the

following:

(1) that the amount is owed to Pulp Co from Jarvis Co,

(2) that Jarvis Co is controlled by Pulp Co’s chairman, Peter Sheffield, and

(3) that the balance is likely to be received six months after Pulp Co’s year end.

The receivable was also outstanding at the last year end when an identical management representation was provided,

and our working papers noted that because the balance was immaterial no further work was considered necessary.

No disclosure has been made in the financial statements regarding the balance. Jarvis Co is not audited by our firm

and we have verified that Pulp Co does not own any shares in Jarvis Co.’

Required:

(b) In relation to the receivable recognised on the statement of financial position (balance sheet) of Pulp Co as

at 31 January 2008:

(i) Comment on the matters you should consider. (5 marks)

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第4题

4 You are an audit manager in Nate & Co, a firm of Chartered Certified Accountants. Yo

u are reviewing three situations,

which were recently discussed at the monthly audit managers’ meeting:

(1) Nate & Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to take the

appointment and is currently carrying out client acceptance procedures. Fisher Co was recently incorporated by

Marcellus Fisher, with its main trade being the retailing of wooden storage boxes.

(2) Nate & Co provides the audit service to CF Co, a national financial services organisation. Due to a number of

errors in the recording of cash deposits from new customers that have been discovered by CF Co’s internal audit

team, the directors of CF Co have requested that your firm carry out a review of the financial information

technology systems. It has come to your attention that while working on the audit planning of CF Co, Jin Sayed,

one of the juniors on the audit team, who is a recent information technology graduate, spent three hours

providing advice to the internal audit team about how to improve the system. As far as you know, this advice has

not been used by the internal audit team.

(3) LA Shots Co is a manufacturer of bottled drinks, and has been an audit client of Nate & Co for five years. Two

audit juniors attended the annual inventory count last Monday. They reported that Brenda Mangle, the new

production manager of LA Shots Co, wanted the inventory count and audit procedures performed as quickly as

possible. As an incentive she offered the two juniors ten free bottles of ‘Super Juice’ from the end of the

production line. Brenda also invited them to join the LA Shots Co office party, which commenced at the end of

the inventory count. The inventory count and audit procedures were completed within two hours (the previous

year’s procedures lasted a full day), and the juniors then spent four hours at the office party.

Required:

(a) Define ‘money laundering’ and state the procedures specific to money laundering that should be considered

before, and on the acceptance of, the audit appointment of Fisher Co. (5 marks)

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第5题

You are the audit supervisor of Maple & Co and are currently planning the audit of an

existing client, Sycamore Science Co (Sycamore), whose year end was 30 April 2015. Sycamore is a pharmaceutical company, which manufactures and supplies a wide range of medical supplies. The draft financial statements show revenue of $35·6 million and profit before tax of $5·9 million.

Sycamore’s previous finance director left the company in December 2014 after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January 2015 who was previously a financial controller of a bank, and she has expressed surprise that Maple & Co had not uncovered the fraud during last year’s audit.

During the year Sycamore has spent $1·8 million on developing several new products. These projects are at different stages of development and the draft financial statements show the full amount of $1·8 million within intangible assets. In order to fund this development, $2·0 million was borrowed from the bank and is due for repayment over a ten-year period. The bank has attached minimum profit targets as part of the loan covenants.

The new finance director has informed the audit partner that since the year end there has been an increased number of sales returns and that in the month of May over $0·5 million of goods sold in April were returned.

Maple & Co attended the year-end inventory count at Sycamore’s warehouse. The auditor present raised concerns that during the count there were movements of goods in and out the warehouse and this process did not seem well controlled.

During the year, a review of plant and equipment in the factory was undertaken and surplus plant was sold, resulting in a profit on disposal of $210,000.

Required:

(a) State Maples & Co’s responsibilities in relation to the prevention and detection of fraud and error. (4 marks)

(b) Describe SIX audit risks, and explain the auditor’s response to each risk, in planning the audit of Sycamore Science Co. (12 marks)

(c) Sycamore’s new finance director has read about review engagements and is interested in the possibility of Maple & Co undertaking these in the future. However, she is unsure how these engagements differ from an external audit and how much assurance would be gained from this type of engagement.

Required:

(i) Explain the purpose of review engagements and how these differ from external audits; and (2 marks)

(ii) Describe the level of assurance provided by external audits and review engagements. (2 marks)

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第6题

5 The directors of Blaina Packaging Co （BPC), a well-established manufacturer of cardboard

5 The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are currently

considering whether to enter the cardboard tube market. Cardboard tubes are purchased by customers whose

products are wound around tubes of various sizes ranging from large tubes on which carpets are wound, to small

tubes around which films and paper products are wound. The cardboard tubes are usually purchased in very large

quantities by customers. On average, the cardboard tubes comprise between 1% and 2% of the total cost of the

customers’ finished product.

The directors have gathered the following information:

(1) The cardboard tubes are manufactured on machines which vary in size and speed. The lowest cost machine is

priced at $30,000 and requires only one operative for its operation. A one-day training course is required in order

that an unskilled person can then operate such a machine in an efficient and effective manner.

(2) The cardboard tubes are made from specially formulated paper which, at times during recent years, has been in

short supply.

(3) At present, four major manufacturers of cardboard tubes have an aggregate market share of 80%. The current

market leader has a 26% market share. The market shares of the other three major manufacturers, one of which

is JOL Co, are equal in size. The product ranges offered by the four major manufacturers are similar in terms of

size and quality. The market has grown by 2% per annum during recent years.

(4) A recent report on the activities of a foreign-based multinational company revealed that consideration was being

given to expanding operations in their packaging division overseas. The division possesses large-scale automated

machinery for the manufacture of cardboard tubes of any size.

(5) Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic tubes which are

capable of housing small products such as film and paper-based products. At present, these tubes are on average

30% more expensive than the equivalent sized cardboard tubes sold in the marketplace.

Required:

(a) Using Porter’s five forces model, assess the attractiveness of the option to enter the market for cardboard

tubes as a performance improvement strategy for BPC. (10 marks)

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第7题

You are the audit manager of Chestnut & Co and are reviewing the key issues identified

in the files of two audit clients.

Palm Industries Co (Palm)

Palm’s year end was 31 March 2015 and the draft financial statements show revenue of $28·2 million, receivables of $5·6 million and profit before tax of $4·8 million. The fieldwork stage for this audit has been completed.

A customer of Palm owed an amount of $350,000 at the year end. Testing of receivables in April highlighted that no amounts had been paid to Palm from this customer as they were disputing the quality of certain goods received from Palm. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance.

Ash Trading Co (Ash)

Ash is a new client of Chestnut & Co, its year end was 31 January 2015 and the firm was only appointed auditors in February 2015, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing.

The inventory count at Ash’s warehouse was undertaken on 31 January 2015 and was overseen by the company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year end.

The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and inventory of $510,000.

Required:

For each of the two issues:

(i) Discuss the issue, including an assessment of whether it is material;

(ii) Recommend ONE procedure the audit team should undertake to try to resolve the issue; and

(iii) Describe the impact on the audit report if the issue remains UNRESOLVED.

Notes:

1 The total marks will be split equally between each of the two issues.

2 Audit report extracts are NOT required.

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第8题

1 Your client, Island Co, is a manufacturer of machinery used in the coal extraction indus

try. You are currently planning

the audit of the financial statements for the year ended 30 November 2007. The draft financial statements show

revenue of $125 million (2006 – $103 million), profit before tax of $5·6 million (2006 – $5·1 million) and total

assets of $95 million (2006 – $90 million). Your firm was appointed as auditor to Island Co for the first time in June

2007.

Island Co designs, constructs and installs machinery for five key customers. Payment is due in three instalments: 50%

is due when the order is confirmed (stage one), 25% on delivery of the machinery (stage two), and 25% on successful

installation in the customer’s coal mine (stage three). Generally it takes six months from the order being finalised until

the final installation.

At 30 November, there is an amount outstanding of $2·85 million from Jacks Mine Co. The amount is a disputed

stage three payment. Jacks Mine Co is refusing to pay until the machinery, which was installed in August 2007, is

running at 100% efficiency.

One customer, Sawyer Co, communicated in November 2007, via its lawyers with Island Co, claiming damages for

injuries suffered by a drilling machine operator whose arm was severely injured when a machine malfunctioned. Kate

Shannon, the chief executive officer of Island Co, has told you that the claim is being ignored as it is generally known

that Sawyer Co has a poor health and safety record, and thus the accident was their fault. Two orders which were

placed by Sawyer Co in October 2007 have been cancelled.

Work in progress is valued at $8·5 million at 30 November 2007. A physical inventory count was held on

17 November 2007. The chief engineer estimated the stage of completion of each machine at that date. One of the

major components included in the coal extracting machinery is now being sourced from overseas. The new supplier,

Locke Co, is located in Spain and invoices Island Co in euros. There is a trade payable of $1·5 million owing to Locke

Co recorded within current liabilities.

All machines are supplied carrying a one year warranty. A warranty provision is recognised on the balance sheet at

$2·5 million (2006 – $2·4 million). Kate Shannon estimates the cost of repairing defective machinery reported by

customers, and this estimate forms the basis of the provision.

Kate Shannon owns 60% of the shares in Island Co. She also owns 55% of Pacific Co, which leases a head office to

Island Co. Kate is considering selling some of her shares in Island Co in late January 2008, and would like the audit

to be finished by that time.

Required:

(a) Using the information provided, identify and explain the principal audit risks, and any other matters to be

considered when planning the final audit for Island Co for the year ended 30 November 2007.

Note: your answer should be presented in the format of briefing notes to be used at a planning meeting.

Requirement (a) includes 2 professional marks. (13 marks)

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第9题

Currently the United States has the highest divorce rate in the world.（)

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第10题

Following a competitive tender, your audit firm Cal & Co has just gained a new audit c

lient Tirrol Co. You are the manager in charge of planning the audit work. Tirrol Co’s year end is 30 June 2009 with a scheduled date to complete the audit of 15 August 2009. The date now is 3 June 2009.

Tirrol Co provides repair services to motor vehicles from 25 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system. The software in each location is

the same because the programs were written specifically for Tirrol Co by a reputable software house. Data from each location is amalgamated on a monthly basis at Tirrol Co’s head office to produce management and financial accounts.

You are currently planning your audit approach for Tirrol Co. One option being considered is to re-write Cal & Co’s audit software to interrogate the computerised inventory systems in each location of Tirrol Co (except for head office)

as part of inventory valuation testing. However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July is a major holiday period for your audit firm.

Required:

(a) (i) Explain the benefits of using audit software in the audit of Tirrol Co; (4 marks)

(ii) Explain the problems that may be encountered in the audit of Tirrol Co and for each problem, explain

how that problem could be overcome. (10 marks)

(b) Following a discussion with the management at Tirrol Co you now understand that the internal audit department are prepared to assist with the statutory audit. Specifically, the chief internal auditor is prepared to provide you with documentation on the computerised inventory systems at Tirrol Co. The documentation provides details of the software and shows diagrammatically how transactions are processed through the inventory system. This documentation can be used to significantly decrease the time needed to understand the computer systems and enable audit software to be written for this year’s audit.

Required:

Explain how you will evaluate the computer systems documentation produced by the internal audit

department in order to place reliance on it during your audit. (6 marks)

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第11题

Currently FIATA has three institute, namely:（). A. Airfreight Institute （AFI) B. Customs Aff

Currently FIATA has three institute, namely:( ).

A. Airfreight Institute (AFI) B. Customs Affairs Institute (CAD

C. Accounting Institute (ATI) D. Multimodal Transport Institute (MTI)

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