ACCT3000 Auditing, Assurance and Risk Assessment

End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Examination Cover Sheet
School of Accounting
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
This is an OPEN BOOK examination
Examination Duration: 48 hours [1.00pm Monday, 15/06/2020 -1.00pm Wednesday, 17/06/2020]
Total Marks: 100 Marks
Instructions to Students – Please read carefully before commencing
This take home exam is available to students for a 48 hour period. Exam is available on Blackboard
from 1.00 pm (Australian Western Standard Time (AWST)), Monday 15/06/2020. Students will have
till 1.00 pm (Australian Western Standard Time (AWST)), Wednesday 17/06/2020 to submit. All
students are required to submit the final exam through Turnitin. A Turnitin assessment with the title
“Final Exam_Semester1_2020” has been created in the ‘Final Examination’ folder under the
‘Assessments’ tab on Blackboard. Please write your answer in a separate word document and please
DO NOT include the final exam questions in the MS Word File with your answers that will be
submitted via Turnitin.
Please follow the steps indicated in Turnitin when you submit your final exam. The following
are instructions that you need to comply with:
1. Select “Single file upload”.
2. Submission Title should be “Final Exam_ACCT3000_Semester 1 2020”
3. The MS Word file submitted should be named as “Student ID_Student Name”. For
example, “14011343_DerekTom”. (Please Note: Only MS Word documents to be
uploaded onto Turnitin. Other formats such as PDFs, JPGs etc. will not be
Venue ____________________
Student Number |__|__|__|__|__|__|__|__|
Family Name _____________________
First Name _____________________
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Page 1 of 5
ANSWER ALL FOUR (4) QUESTIONS. (Total Marks = 100 Marks)
Question 1
Consider the following independent situations, all of which apply to audits of entities for the
year ending 31 December 20X7:
(i) Slipway Limited, a listed company, has been experiencing declining sales over the
last 2 years. Cost cutting has proved difficult due to the high level of imported
machinery used in Slipway’s operations and consequently margins have been falling.
While the bankers are presently happy to continue providing Slipway with loan
facilities, they do expect to see improved results in the next financial report. Articles
about Slipway’s expected financial results appearing in recent press reports all had
quite a pessimistic tone.
(ii) Discount Foods Limited is a large supermarket chain with offices in all capital cities
around Australia. Until 30 June 20X7 data processing relating to payroll transactions
will be carried out in each capital city by an independent computer service bureau.
(iii) Getaway Pty. Limited is a long established firm which has been operating a boutique
hotel in the Blue Mountains for over 20 years. During this time, it has adopted a
conservative business strategy that has seen it produce adequate, though slightly
unimpressive, results. A new CEO has been appointed to run the firm from 1
September 20X7. He has already released his plans for renovating the hotel, despite
not officially serving as CEO yet. You have also heard him discuss the
implementation of a new marketing strategy to boost occupancy rates.
(iv) Angora Pty. Limited is a small primary producer specializing in the production of
angora wool. Angora’s recent display at a trade show has seen orders flood in from
overseas buyers. The accountant, Michael, has done his best to satisfy the orders as
quickly as possible while maintaining the appropriate (foreign currency) accounting
records. However, from some of the questions he has been asking you, you suspect he
is out of his depth.
(v) Kings Pty. Limited has been manufacturing uniforms for the Australian market for the
last 40 years. The government’s recent tariff reduction policy has placed Kings in
direct competition with cheaper uniforms manufactured overseas. In a bid to retain
market share, Kings has been selling part of its school uniform range at less than cost.
However, overall profit figures remain buoyant.
For each of the above independent situations describe the overall impact on audit risk and
identify the specific component(s) of audit risk affected.
(Total Marks: 5 X 4 Marks = 20 Marks)
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Page 2 of 5
Question 2
Eagle Sawmill Limited (Eagle) operates a timber sawmill in a large regional town. It sources
its raw material (pine logs) from a number of local growers and from its own plantations.
Logs are transported on large trucks that are weighed in on the company’s weighbridge and
weighed out after dropping their loads in the storage area. Logs are then debarked and sawn
to size in the cutting area of the mill. The various logs are then sent to other areas of the
sawmill depending on what they will be used for.
You are a senior on the audit. During the planning stage of the audit, you perform analytical
procedures. In the current audit period, the average number of days to pay creditors has
declined significantly from the average recorded over the past three financial years.
Your investigation reveals that log suppliers represent more than 90 percent of the value of
accounts payable. As an internal control, details of the goods received notes are matched
against the supplier’s invoice. The accuracy of the invoice is checked, after which the invoice
is authorised for payment by the mill accountant. Any discrepancy between what the
supplier’s invoice amounts should be and the actual amount charged by the supplier is
communicated to the supplier by way of a pre-numbered ‘request for credit’ form. This form
provides reasons for the differences and the amount requested to be credited to the company
by the supplier.
The correct amount of the invoice is entered into the accounts payable accounting system and
the supplier’s monthly statement is reconciled to the accounts payable balance per the
creditors’ ledger at month end. The differences are mostly attributable to:

Unprocessed invoices due to pricing differences
Timing differences in the recorded date of a payment made
Amounts requested for credit
Settlement discounts disallowed.

Lee Hayward, the company’s financial controller, informs you that due to the increase in the
price of timber, new contracts with suppliers have been negotiated over the past year. The
accounts payable personnel have complained that management is too slow in informing them
about the effective dates of the implementation of the contracts and the revised prices. A brief
inspection of the accounts payable reconciliations for five of the biggest suppliers indicates
that many invoices are being held back due to the lack of correct pricing.
a) List two key assertions at risk in relation to accounts payable; (5 Marks)
b) Provide your justification for each assertion. (5 Marks)
c) For each assertion, outline two substantive tests of details to obtain sufficient
appropriate audit evidence. (10 Marks)
(Total Marks = 20 Marks)
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Page 3 of 5
Question 3
Consider each of the following independent and material situations. In each case:
 the financial report date is 31 December 2019;
 the field work was completed on 12 February 2020;
 the directors declaration and the audit report were signed on 19 February 2020; and
 the completed financial report accompanied by the signed audit report were mailed to
shareholders on 18 March 2020
A. You are an auditor pf AB Limited (AB), a company specialising in industrial property
development. On 10th January 2019, AB purchased property and entered into a
contract to develop a shopping complex and then sell the developed real estate to an
unrelated third party for a ‘cost-plus’ settlement price. Following the sale on 20th
October 2019, an economic recession resulted in the rentals and occupancy rates
being well below forecasts prepared by your client. On 10th January 2020, the
purchaser threatened to sue for damages, alleging they relied on your client AB’s
forecasts when entering into the contract. The amount of damages being claimed is
highly material to your client. You have obtained an opinion from a well-known
Senior Counsel (SC) who concludes that damages are likely to be payable.
B. You are the auditor of Australian Paper Limited (APL). A division of APL prints and
publishes books about celebrities. A large print run of a scandal packed book titled
‘The Secret Life of Brickley Cooper’ was produced in January 2020. As of 31st
December 2019, stocks of raw materials were around one-third higher than usual, as
the division purchased extra materials in order to produce this book. On 20th March
2020, Brickley Cooper was killed in tragic circumstances while rescuing a young
child from a burning house. APL pulped the book on 25th March 2020, after receiving
advice that selling the book following Brickley Cooper’s tragic and heroic death
would result in a severe public backlash.
C. You are the auditor of GISCO Limited (GISCO), a professional services client. On 5th
February 2020, GISCO settled and paid a personal injury claim to a former employee
as a result of an accident that occurred in December 2016. GISCO had not previously
recorded a liability for the claim.
Question 3 continued over the next page
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Page 4 of 5
Question 3 continued
D. You are an auditor of JK limited (JK), a major public company involved in the
property development industry. Prior to signing your audit report you sought a letter
of comfort from JK’s bankers that the bank would continue to support JK by
providing finance over the coming year. The bank agrees that it would continue to
provide finance. It was your view that without such support JK had severe cash flow
problems and the financial report would need to be modified with respect to a going
concern assumption. On 10th March 2020, the company’s bankers wrote to you
advising that the company had breached its loan covenant with the bank in February
2020 and that the loan facility was now due and payable and would not be renewed.
E. You are the auditor of Absolute Wonder Limited (AWL). AWL holds investments in
several companies listed on the Hong Kong stock exchange. On 10th February 2020,
the exchange’s value plummets by 30 per cent.
For each of the events A to E:
1. Outline the required treatment in the financial report, if any. Justify your answer.
(5 X 2 Marks = 10 Marks)
2. Determine whether additional audit evidence needs to be obtained. If so, describe the
nature of the audit evidence to be obtained and the audit procedures used to obtain it.
(5 X 2 Marks = 10 Marks)
3. If no action is taken by management, determine the most appropriate audit opinion to
be issued.
(5 X 2 Marks = 10 Marks)
(Total Marks = 30 Marks)
End of Semester 1 & Trimester 1A, 2020
ACCT3000 Auditing, Assurance and Risk Assessment
Page 5 of 5
Question 4
You are currently auditing Speed Pty Ltd (Speed), a subsidiary of Tech Ltd (Tech). Speed is
an internet service provider that provides free internet access to its subscribers. In return,
subscribers agree to provide their name, address and other details to Speed for the purpose of
on-selling this information to various marketing firms. When Speed was established two
years ago, its business plan stated that it would need 25,000 subscribers in order to break
even. Speed has experienced demand far in excess of this but unfortunately, due to
technological problems, it can only provide services to 21,000 subscribers at the present time.
This has reduced the price that third parties are prepared to pay for subscriber information, as
they need a certain volume of each type of consumer (for example, males aged 25-35 earning
more than $60,000 p.a.) to make their marketing efforts worthwhile. Speed is the third-largest
of seven ‘free-access’ providers in the industry. The two biggest providers are each
approximately 30 percent larger than Speed, and both are seeking to rapidly expand their
customer base. Over the past few months, Speed has been negotiating to buy the business of
one of its smaller rivals, Network Pty Ltd (Network). This would give Speed access to more
subscribers and, more critically, access to Network’s software, which has the capacity to
support another 50,000 users.
In response to Speed’s directors’ concerns regarding Speed’s financial situation, Tech has
agreed to become a ‘lender of last resort’ should Speed need urgent financial assistance.
However, Tech’s management has made it clear that this assistance will only be provided if
Speed is in serious danger of going into receivership.
Speed’s directors are all young ‘whiz-kids’ with backgrounds in the computer and technology
industries. Each has an equity share in the business. Recently the board split into two distinct
factions, and relations among the board members are now less than harmonious. The
financial controller has expressed concern that key business decisions are being delayed
because the board is not focused on the business. Unresolved issues include a proposed
additional capital injection from each of Speed’s directors to see the company through its
present difficulties.
a) List the factors that indicate that Speed may have a going concern problem. For each
factor, identify and discuss any related mitigating factors. (10 Marks)
b) Outline the key additional information you would need to obtain before reaching a
conclusion on Speed’s going concern status. (10 Marks)
c) If all seven entities in the industry are experiencing software problems and are unable
to satisfy demand for their services, how will this change the way you assess the
going concern status of Speed? (10 Marks)
(Total Marks = 30 Marks)

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