Homework answers / question archive / Online Midsemester exam MP221   AUDITING AND ASSURANCE SERVICES Student name: Student number: Time: 1 hour 30 minutes Enter your answers below each question

Online Midsemester exam MP221   AUDITING AND ASSURANCE SERVICES Student name: Student number: Time: 1 hour 30 minutes Enter your answers below each question

Accounting

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Online Midsemester exam

MP221   AUDITING AND ASSURANCE SERVICES

Student name:

Student number:

Time: 1 hour 30 minutes

Enter your answers below each question.
Exam commences 11.15 Finishes 12.45
Save this file with your answers in Word and submit it through the link in Moodle in week 6 .
Question 1 ( 2 marks)
Explain why there is a difference between the expectations of shareholders and other financial report users and the auditors when considering the audit report .
Which of the following circumstances requires the auditor to include an other-matter paragraph in the audit report?

(A) When the financial statements are accompanied by required supplementary information (RSI).

(B) When there is a matter appropriately disclosed in the financial statements but which the auditor believes is of such importance as to be fundamental to users’ understanding of the financial statements.

(C) When a scope limitation prevents the auditor from obtaining sufficient appropriate audit evidence regarding the results of operations.

(D) When the report of a component auditor is being relied upon in an audit of consolidated financial statements.
Question 2(  4 marks )
Explain how the auditors’ legal liability to shareholders and third parties which was decided in the Pacific Acceptance case has changed as a result of different cases decided since then and explain what the current situation is .
Question 3(4 marks)
An auditor must understand audit risk and its components when planning a financial report audit. The auditor evaluates the risk of material misstatement by disaggregating it into three components: inherent risk, control risk and detection risk.

Required:

For each of the situation in the table below, select the component of audit risk that is most directly illustrated. The components of audit risk may be used once, more than once, or not at all. (4 marks)

Situation	Component of audit risk
(a) Technological innovations within the industry have caused a major product to become obsolete
(b) Confirmation of payables by an auditor fails to detect a material misstatement
(c) Cash payments have occurred without proper authority by the chief financial officer
(d) The business has suffered a 50% fall in revenue due to the coronavirus and has asked the bank to increase its bank overdraft.

uestion 4 (8 marks)

The following situations involve potential violation of the general ethical principles as outlined in APES 110 .You are asked to advise whether they involve a violation or not of the ethical principles and if there is a violation explain which ethical principle has been violated and the reason(s)why it is or isn’t a violation .Enter your answer below each part of the question.
a) Jenny Wang is the Senior Auditor on the audit of Panania Cars Pty Ltd , a large car dealership,a which sells new and used cars .The Sales Manager advises Jenny Wang that there is a sale to long established customers of the car dealership and since she has audited the company for the past six years she can purchase the new cars at a twenty percent discount on the discounted sales price.
Answer
b)A client requests the assistance of D.Marron ,a chartered accountant ,in the installation of a computer system for maintaining production and inventory records .As Marron has no experience in this type of work he engages  a computer consultant who he has confidence in to carry out the review.Due to the highly technical nature of the work Marron does not review the computer consultant’s work and once the client has agreed Marron gives the go ahead for the installation of the computer system.
Answer
c)Six small chartered accounting firms have been taking part in a quality assurance working paper review program.Under this review each firm reviews the working papers of another firm and the reviewer discusses the strengths and weaknesses of the audit with the auditor from the other firm.
Answer
d)Bill Holland , a chartered accountant ,sets up a casualty and fire insurance agency to complement his auditing and tax services .He doesn’t use his own name on anything relating to the insurance agency and has a highly competent manager,Simone Taylor, who runs it.Holland often requests that Taylor review the adequacy of the client’s insurance with management if the client seems underinsured .
Answer
QUESTION 5  ( 8 marks)

The following situations refers to threats to the Auditor’s independence.You are asked to state what  the different threats to the Auditor’s independence are and explain how these threats impact on the  Auditor’s independence and any other implications for yourself and your firm.
Enter your answer below  each situation.
  
SITUATION 1

Enid Blyton has been working as an auditor for the Anthony Don Chartered Accounting firm for the past four years and has just started an audit on the Green Thumbs environmental company, a small newly listed public company which has just listed as a public company one month ago.

The Green Thumbs environmental company  has just started using a new contractor to dispose of its toxic waste .You know that this new contractor has won tenders in the past and there have been several unfavourable articles about this contractor in the local press.

Your Audit Manager ,Peter Don , has stated that it is your responsibility just to provide an opinion on the financial statements with the emphasis being on providing an opinion on whether the financial statements are true and fair and whether there are any material misstatements.Your Audit Manager has also advised that there will be some higher duties coming up within the Audit firm in the next month after the current audit results .
Answer
SITUATION 2

Jean Douglas has just started to do the audit on the latest financial statements and has just made the following notes from your opening interview with John Dooley,CEO of Dooleys.
John has apologised for not making the final payment of 30% of the prior years audit fee but has explained that he will ensure the cheque is written once he is happy with the progress on the current audit.

Also  John Dooley has advised that Dooleys is about  to start deliberations about the selection of Auditor for the following year.The Dooleys audit comprises forty percent of the annual audit fees for the firm .

John has advised that they will be providing a free trip to Europe for an Auditor from the Audit firm and his partner once the audit is successfully completed.

Jean is concerned with several aspects of the current audit as Dooleys do not appear to be following the accounting standards in their valuation of inventory  as they are not taking into account the reductions in fair value of inventory and the impact on the financial statements is material.   
Answer
Question 6 ( 4 marks)
You are asked to advise which management assertion the auditor is verifying in each of the following situations.Enter your answer below each part.

(a)Regina Silvan ,Auditor ,is reviewing the entries on 28^th, 29^th and 30^th June 2019 to check that they are entered in the financial statements as at 30 June 2019.
Answer
(b) Peter Ng,Auditor , is checking that all stock sheets have been included in the total of inventory .
Answer
(c)Ray Davies ,Auditor ,is checking that the firm has invoices for all equipment it owns.
Answer
(d) Cora Bickam ,Auditor, has discovered that the firm is valuing its inventory at cost even though the net realisable value of the inventory is now ten percent lower than the cost
Answer