AUE3702 LATEST EXAM PACK 2021.

AUE3702 LATEST EXAM PACK 2021. Substantive Procedures And Finalising An Audit. Review the procedures performed by management to identify events after the balance sheet date. (1½) 2. Inspect minutes of the shareholders, board of directors, audit committee and board committee meetings, for the period after year-end, and enquire on relevant matters where the minutes are not available. (1½) 3. Review the latest interim financial statements, budgets, cash flow forecast, management reports etc (scrutinising books after year end). (1½) 4. Enquire from legal advisors on pending litigations/claims. (1½) 5. Consider relevant information which came to the auditor’s attention from sources outside of the entity after year end. (1½) 6. Scrutinise prior year working papers to identify types of events which have occurred previously. (1½) 7. Enquire from management whether subsequent events had occurred which could affect the financial statements. (1½) • New commitments, borrowings commitments. (1½) • Sales or acquisitions of assets have occurred /planned. (1½) • Any developments regarding contingencies. (1½) • Unusual accounting adjustments made or contemplated. (1½) • Appropriateness of accounting policies used in the AFSs. (1½) • Events occurred that are relevant to the measurement of estimates or provisions. (1½) 8. Obtain a management representation letter referring to the appropriate treatment of subsequent events. (1½) (14 x 1½) Maximum 18 Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School QUESTION 6 Completing the audit reporting schedule Format of answer: Presentation (½) 6.1 6.2 etc. (Schedule included for marker reference only) Issue Conclusion in audit file Reason for possible modification Extent to which AFS. Are affected Effect on report/ Type of opinion 1 The provision in respect of the credit note policy was understated by a material amount. 6.1 Material misstatement: disagreement with management 6.2 Material but not pervasive 6.3 Qualified - Except for 2 The ability of Tiger Trailers to continue as a going concern in the foreseeable future depends on negotiations to be finalised after the annual financial statements (AFSs) are issued. Disclosure of this fact has been made in the AFSs. 6.4 Adequately disclosed 6.5 Fundamental to the users understanding 6.6 Emphasis of matter 3 Various transactions took place during the year between the audit client and a party related to the client. These transactions took place well below the market price. No disclosure of the related party transactions has been made in the AFSs and this has a major affect on the AFSs which on the whole are misleading. 6.7 Material misstatement: Disagreement with management 6.8 Material and pervasive 6.9 Adverse opinion (Marks 9 x 1½ + ½ presentation = 14) Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School AUE S2 – SOLUTION (UNISA) Part 1 In conducting an initial audit engagement, the objective of the auditor with respect to opening balances is to obtain sufficient appropriate audit evidence about whether: (a) Opening balances contain misstatements that materially affect the current period’s financial statements; and (1.5) (b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, or changes thereto are appropriately accounted for and adequately presented and disclosed in accordance with IFRS. (1.5) The previous auditor rushed the audit and it is uncertain as to whether a competent quality audit was performed. (1.5) The fact that he will not allow us to review the working papers further questions the reliability of the work performed by the previous auditor. (1.5) As a result, we can place no reliance on the work performed by the previous auditor. (1.5) We would need to perform alternative procedures on the opening balances to obtain sufficient and appropriate evidence on them for comparative purposes as well as balances that still form part of our closing balances. (1.5) We would also need to perform alternative procedures for purposes of identifying possible misstatements that could affect our current audit report. (1.5) As well as to obtain evidence over the consistency of accounting policies and methods. (1.5) Alternative procedures could include: • Opening inventory stock counts (1.5) • External confirmations (1.5) • Roll back procedures (1.5) • Cut-off procedures (1.5) If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with ISA 705. (1.5) If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with ISA 705. (1.5) If the auditor concludes that: (a) the current period’s accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or (1.5) (b) a change in accounting policies is not appropriately accounted for or not adequately presented or disclosed in accordance with IFRS, the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance with ISA 705. (1.5) Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School Available (24) Maximum (15) Part 2 As we cannot make use of the previous auditors work relating to the opening balance of inventory, we need to performalternative procedures. If we are satisfied that the system of internal control over inventory works, we can rely on the system and the quantities of items given in the inventory records can be accepted. However if this is not the case the following additional substantive procedures will be performed: Valuation • Recalculate the value of inventory and compare to the schedule (cost * quantity) • Select a sample of inventory from the stock records at 31 August 2012 and perform the following tests: o Agree the cost price per the inventory list, to the costs used to calculate the inventory value in the general ledger to ensure the correct value was used o Ensure inventory was recorded at the lower of cost and net realizable value (per IAS 2) by comparing the cost value per the inventory list to the most recent selling price of that item of inventory o As inventory is kept on the FIFO basis, perform testing on the cost of inventory by applying the product code and description to its matching purchase invoice price to ensure the value of inventory is correctly calculated • Enquire from management regarding the provision for stock obsolescence in the prior year (as this would reduce the value of inventory) and perform the following procedures over the estimate: o Discuss the policy relating to the inventory provision with management and consider the reasonableness thereof o Consider the appropriateness of management assumptions and methods used o Compare the provision to the actual write off of inventory in the current year consider management’s ability to provide accurately • Review the reasons for credit notes issued during the first few months in the new year (2013) and any customer complaints received may also be inspected to determine any obsolete or defective inventory • Select entries from the inventory records for both the inflow and the outflow of inventory and follow them through to the source documents to ensure that all entries in the inventory records are valid. • Perform casting of the general ledger and inventory lists at 31 August 2013 to ensure inventory recorded at right amount • Inspect the minutes of meetings or journal entries for any large write down/(s) of inventory during the first few months in the new year. Cut off • For purchases of inventory: o Obtain 10 purchase invoices/Goods received notes just before 31 August 2012 and 10 invoices just after 31 August 2012 o For those items purchased before the year end, trace through to the GL to ensure they have been recorded Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School o For those items purchased just after year end, ensure they are not included in the stock listing • For sales of inventory: o Test 10 entries before and after 31 August 2012 that they are appropriately included or excluded from the inventory records (Note: the number 10 is not important. The student must write that he/she will test entries before and after year end that relates to sales invoices). Existence • As no stock count was performed by the previous auditor, obtain a copy of the stock count performed by store manager / technical product manager to confirm a stock count was actually performed • Consider if we can rely on the stock count performed by: o evaluating the results of our assessment of the control environment as well as, o the integrity and reliability of the store manager / technical product manager (if he is in a position to manipulate results of the stock count (access to records, segregation of duties etc) • Inspect the stock count sheet for evidence of differences identified at the count and trace through to the general ledger to ensure they were correctly processed. • Obtain a copy of the stock count instructions to ensure that the count was appropriately performed i.e. evidence that stock was counted by teams, the count was performed in a separate area blocked off from deliveries etc… • Agree the quantity on hand according to the perpetual inventory list to the stock count sheets. • Scrutinise the 2013 inventory listing for any abnormal inventory items not in-line with Agrichem’s business activities of cell-phones and cell-phone accessories Perform roll back procedures (existence/valuation): o Reconcile opening inventory to the current inventory count (Opening units plus units purchased less units sold) o agree the reconciling items to supporting documentation for example quantities sold to invoice quantities sold during the year o Agree the reconciling items to supporting documentation for quantities purchased to supplier invoices/good receive notes. Completeness • Perform subsequent sales testing, by selecting sales invoices in September 2012 and tracing them back to the inventory list at year end to ensure they were accurately recorded • Compare inventory lists in August 2012 to August 2013 to identify if there were any missing inventory categories at 31 August 2012 and follow up with management. • Agree the quantities of product items on the physical count sheets to the quantities reflected on the inventory listing in the GL.