AUE3702 LATEST EXAM PACK

AUE S1 – QUESTION (UNISA) You are the audit manager for the 2013 audit of Tiger Trailers (Pty) Limited, a manufacturerduty trailers. Their financial year end is 28 February and they have been your client for four manufacturing process of trailers is not a complex process and can be easily understood by production process. The audit plan indicated no unusual risk of misstating inventory at the aYou attended the client’s annual inventory count and are satisfied with the counting proceducopy of the final stock count sheets and you are satisfied that the descriptions and quantitiereflection of the inventory count at year end. The stock count sheets are computerised and information: product code with a description, quantity, cost price and selling price. The cost provided you with the costing records. Every trailer model has a blueprint with the exact spe(diagrams), product codes of raw materials used in the manufacturing process and costing. the cost price of a trailer is determined and used on the inventory sheets. Tiger Trailers (Pty) Limited employs a registered production engineer, Mike Evans, on a conthas been a contract worker for five years and is responsible for ensuring the accuracy of thealso certifies the stage of the work in progress. The cost accountant is responsible for costinCost is determined on the first-in-first out (FIFO) basis. Direct costs of manufacturing and a pmanufacturing overheads, based on normal operating capacity, are included in the cost of mInventories at cost on 28 February 2013 R’000 2012 R’000 Finished goods Work-in-progress (70% complete) Raw materials 995 799 Journal entry: Credit Note Policy Tiger Trailers (Pty) Limited accepts returns of goods sold and has a policy that makes provisbefore year-end. It is company policy to provide for 2% of the February sales. The journal entry for this provision is: 28/2/1 3 Sales (Dr) Provision for credit notes (Cr) February sales credit note provision per policy document R2 975 012 x 2% R59 500.24 R59 500.24 Subsequent events On reviewing the previous year’s audit programme for subsequent events you noticed that tprocedures were either poorly formulated or incomplete. You plan to reformulate them so thtrainee is able to understand exactly what he has to do when executing them. In preparing tperform the subsequent events procedures you explained the accounting principles of subsehim. Audit reporting issues On completion of the audit the audit partner gave you the following schedule of issues that audit report. He requested you to complete the following schedule: Issue Conclusion in audit file Nature of the matter that gave rise to the modification (if applicable) Effect of misstatement on financial statements Effect on report/ Type of audit opinion E.g. No cash records Insufficient appropriate evidence – scope limitation Fundamental Disclaimer 1 The provision in respect of the credit note policy was understated by a material amount. 6.1 6.2 6.3 2 The ability of Tiger Trailers to continue as a going concern in the foreseeable future depends on negotiations which will be finalised after the annual financial statements (AFSs) are issued. Disclosure of this fact has been made in the AFSs. 6.4 6.5 6.6 3 Various transactions took place during the year between the audit client and a related party. These transactions took place well below the market price. No disclosures of the related party transactions have been made in the AFSs. This has a major affect on the AFSs and as a result causes the AFSs to be misleading as a whole. 6.7 6.8 6.9 REQUIRED: 1. Describe the substantive procedures that you will perform to ensure that finished gcorrectly valued at year end. (30) 2. Describe the aspects that you will consider before relying on the work of the engineEvans. (15) 3. Describe the audit procedures that you will perform to audit the journal entry provicredit notes. (18) 4. Explain the two types of subsequent events identified by ISA 560 Subsequent evenrespective accounting treatment thereof. (6) 5. List the audit procedures to identify subsequent events. (18) 6. Complete the audit reporting schedule of issues that could affect the audit report. Nyour answer in accordance with the schedule – 6.1, 6.2, etc. (13) AUE S2 – (QUESTION) QUESTION 1 The audit firm where you are a trainee accountant has been appointed as the new auditor of Agrichem Ltd, a wholesaler of agricultural chemicals and pesticides. The period under review, fowhich you are responsible, covers the year ended 31 August 2013. The company has one centrawarehouse and sells its products to distributors and large fanning operations throughout the country. Inventory is a material figure on the trial balance. Opening balances Since this is the first time that your firm is performing the audit, permission was obtained from tclient to contact the previous auditors to obtain more information regarding the opening balancThe previously appointed auditor simply informed you that he was pressed for time and had to rthe 2012 audit. He is therefore reluctant to allow you review the 2012 audit working papers. Thiimmediately made you wonder how reliable the opening balances are and why the auditor has issued an unmodified audit report. Inventory While visiting the central warehouse at Agrichem Ltd you established that perpetual inventory records are maintained. Goods received notes and invoices are used to capture inventory movements. While discussing the date and time to perform the physical annual inventory countstore manager informed you that the previous auditor has never attended the inventory count. also noticed that the warehouse appeared somewhat untidy and it was extremely hot in the warehouse. You wondered about the effect of extreme temperatures on the shelf life of the chemicals. You immediately made a note that damaged and obsolete inventory should be identduring the count and that the value of inventory could possibly be overstated. The assistance ofexpert may therefore be justified to determine the effect of heat on the chemicals. During your attendance of the physical inventory count at year end, the technical product manaalso assisted with the counting. During informal conversations held with him, he informed you tlawsuit has been filed against Agrichem Ltd because of a specific chemical sold to a farmer thatdestroyed his entire crop. Apparently the product is not registered for that particular weed and sales person therefore sold the incorrect product to this customer. The value of the failed crops substantial - R. Trade payables As part of the verification procedures for purchases you decided to satisfy yourself as to the valof the reconciling items appearing on the trade payable's reconciliation of Adhoc Chem Manufacturers Ltd at 31 August 2013. Agrichem's policies require that all purchases must be accompanied by an authorised order and goods received note. The following trade payable's reconciliation for Adhoc Chem Manufacturers Ltd was prepared byaccountant: