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Assessment item 3 Assignment 2 Value: 25% Due date: 06-May-2018 Return date: 29-May-2018 Length: 3,000 words Submission method options Alternative submission method Task Question 1 Topic 3 & 4...

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Assessment item 3
Assignment 2
Value: 25%
Due date: 06-May-2018
Return date: 29-May-2018
Length: 3,000 words
Submission method options
Alternative submission method
Task
Question 1          Topic 3 & 4          Planning, analytics and risk assessment         (40 marks)
 
 
You are the auditor of Printer Solutions Ltd, a manufacturer of colour printers. You have scrutinised the financial reports of the company and are concerned about its future as a 'going concern'. The summarised financial reports for the past three years plus the unaudited draft accounts for the cu
ent year are shown below.
 
    Printing Solutions Ltd
     
     
     
     
     
    Income Statement $'000s
    2017
    2016
    2015
    2014
    Sales
    3080
    2660
    2060
    1310
    Cost of Goods Sold
    (2350)
    (2010)
    (1566)
    (969)
    Gross Profit
    730
    650
    494
    341
    Other Expenses
    (350)
    (390)
    (270)
    (140)
    Interest
    (300)
    (120)
    (70)
    (2)
    Net Profit (Loss)
    80
    140
    154
    199
     
     
     
     
     
    Statement of Financial Position $'000s
     
     
     
     
    Cu
ent assets
     
     
     
     
    Trade and other receivables
    772
    660
    432
    382
    Inventory
    680
    510
    350
    205
    Total cu
ent assets
    1452
    1170
    782
    587
    Non-cu
ent assets
     
     
     
     
    Property, plant and equipment
    1810
    1500
    920
    370
    Intangible assets
    40
     
     
     
    Total non-cu
ent assets
    1850
    1500
    920
    370
    Total assets
    3302
    2670
    1702
    957
    Cu
ent liabilities
     
     
     
     
    Trade and other payables
    835
    795
    486
    400
    Cu
ent bo
owings - Bank Overdraft
    52
    40
    21
    16
    Total cu
ent liabilities
    887
    835
    507
    416
    Non-cu
ent liabilities
     
     
     
     
    Non-cu
ent bo
owings - Secured loan
    1500
    1000
    500
     
    Total liabilities
    2387
    1835
    1007
    416
    Net Assets
    915
    835
    695
    541
    Equity
     
     
     
     
    Share capital
    300
    300
    300
    300
    Retained earnings
    615
    535
    395
    241
    Total Equity
    915
    835
    695
    541
 
Extracts from the notes to the financial statements
 
    Trade and other receivables
     
     
     
     
    Trades receivable
    802
    716
    465
    410
    Provision for doubtful debts
    (40)
    (66)
    (43)
    (38)
     
    762
    650
    422
    372
    Prepaids and other receivables
    10
    10
    10
    10
     
    772
    660
    432
    382
     
     
     
     
     
     
     
     
     
     
    Inventory
     
     
     
     
    Raw materials
    146
    128
    87
    51
    WIP
    152
    127
    105
    72
    Inventory held for sale
    382
    255
    158
    82
     
    680
    510
    350
    205
     
     
     
     
     
    Trade and other payables
     
     
     
     
    Trades payable
    799
    744
    431
    338
    Other payables
    15
    15
    15
    15
    Cu
ent Tax payable
    21
    36
    40
    47
     
    835
    795
    486
    400
     
     
     
     
     
 
Additional Background Information
 
In an attempt to expand into overseas markets, Printer Solutions automated many of its operations in 2016 with the purchase of some highly sophisticated plant and machinery. The new plant and machinery was financed with a secured variable loan of $100,000 and a bank overdraft facility.
 
The company purchases the components that make up the printers from a variety of local and overseas suppliers. Cu
ently, 85% of Printer Solutions sales are to one electrical discount chain store, and the company has plans to
oaden its sales base in both the local and overseas markets. While local sales have increased, the company has had mixed results with sales to overseas markets. Further expansion of the company's sales base, especially overseas, revolves around the development and production of a state of the art printer that will be tailored to meet the needs of the top end of the market. In addition, a new computerised ordering system is being developed.
 
Plans are well underway for the new range of printers and the computer system upgrade. The company’s loan facility has been increased to $150,000 over the past two years to cover some of these expenses. Other funding has come from cash flow. However, the development will require a significant amount of additional money. The directors hope this money will come via a new public issue of shares planned for later this year and promises of loans and other forms of assistance from business acquaintances of the CEO, Mr Peter Andrews.
 
Required:
 
(a)   Analyse the financials of Printer Solutions Ltd. Include a simple comparison of the movement in the accounts between 2016 and 2017, a trend analysis, and the profitability, liquidity, solvency and efficiency ratios for the last three years (2017, 2016 and 2015).  (11 marks)
 
(b)   With reference to each of the ratio areas, the other analysis and the background information provided in the question, explain why you perceive there are going concern issues for Printer Solutions Ltd. (5 marks)
 
(c)   From your analysis of the company, identify four account balances that could potentially be materially misstated and justify each choice.  (12 marks)
 
(d)   For each of the accounts/areas in (c), identify the two assertions of primary interest to you and justify your choice.  (12 marks)
  Question 2          Topics 5 & 6          Internal control and tests of control        (25 marks)
 
You are engaged in your first audit of VIPet Pty Ltd (VIPet) for the year ended 30 June 2017. The Managing Director is Matthew Stanton, a qualified veterinarian, and the company employs seven permanent staff. The permanent staff consists of two permanent veterinarians, three veterinarian assistants; a receptionist, an office assistant/typist and a bookkeeper. In July 2016 VIPet commenced providing “on farm” veterinarian services for small ho
y farms, due to a large number of small holdings in the area. The company has 250 clients using this service within a 60 kilometre radius and employs an additional five veterinarians on an hourly basis to visit the client farms. The casual veterinarians submit weekly time reports, which include the customer's name and the time devoted to each customer. Time charges for emergency visits are shown separately from regular monthly visits on the reports.
 
As part of your evaluation of the new service you note the following:
 
1. VIPet requires customers to sign annual contracts which are pre-numbered and prepared in duplicate. The original is filed in numerical order by contract anniversary date, and the copy is given to the customer. The contract entitles the customer to one routine veterinarian service each month. However, the contract does not include emergency visits, which are billed separately.
 
2. Fees for monthly services are payable in advance – quarterly, half-yearly or yearly - and recorded on the books as 'income from services' when the cash is received. All payments are made by cheque and are received by post.
 
3. Pre-numbered invoices for contract renewals are prepared in triplicate from information in the contract file. The original invoice is sent to the customer 30 days before the due date of payment, the duplicate copy is filled chronologically by due date, and the triplicate copy is filed alphabetically by customer surname. If payment is not received within ten days of the due date, a cancellation notice is sent to the customer, and a copy of the notice is attached to the customer’s contract.
 
4. Matthew Stanton approves all cancellations and reinstatements of contracts.
 
5. The bookkeeper notifies the veterinarians of all contract cancellations and reinstatements and requires the veterinarians to acknowledge notification of cancellation.  
  
6. Pre-numbered invoices for emergency services are prepared weekly from the information shown on the veterinarians' time reports. The customers are billed at 300 percent of the veterinarian's hourly rate. These invoices, prepared in triplicate and distributed as outlined above, are recorded on the books as 'income for services' at the billing date. Payment is due 30 days after the invoice date.
 
7. All remittances are received by the office assistant/typist, who prepares a daily list of cheques received and stamps a restrictive endorsement on the cheques. A copy of the list is forwarded with the cheques to the bookkeeper who posts the date and amount of each cheque received on the copies of the invoices in both the alphabetical and the chronological files. After posting, the copy of the invoice is transfe
ed from the chronological file to the daily cash receipts binder, which serves as a subsidiary record for the cash receipts book. The bookkeeper totals the amounts of all the remittances received, posts this total to the cash receipts book and attaches the daily remittance tapes to the paid invoices in the daily cash receipts binder.
 
8. The bookkeeper prepares a daily bank deposit slip and compares the total with the total amount shown on the daily remittance tapes. All remittances are deposited in the bank the day they are received.
 
9. The financial report is prepared on an accrual basis.
 
 
Required:
 
(a)  Identify and explain four (4) key controls relating to revenue and cash collection. Cash receipts from sources other than these regular visitations and emergency call-outs need not be considered.  (10 marks)
 
(b)  For the controls identified in (a), explain the tests of controls you would use to examine the revenue from services account for the year ended 30 June 2017. Justify your choices. (10 marks)
 
(c)  Identify any concerns that you would have about the controls that might cause you place less reliance on the controls, even if the test of controls appear adequate.  (5 marks)
 
Question 3          Topic 6          IT Controls         (15 marks)
 
 
You are preparing for the audit of your client NSW Rural Heath, for the financial year ended 31 December 2017. The health service implemented a new payroll system and you have noted the following:
 
1. The new payroll application is more complex than the old system, but its reporting function provides more detail. For example, the new application calculates leave, superannuation, payroll tax and work cover expenses, as well as the co
esponding accruals.
 
2. Due to the
ief time available to implement the system, the previous application ceased operation on 31 December 2016 and the new application went live on 1 January 2017 without running parallel with the previous application. Staff training and testing of the new application was limited.
 
3. Access to the master files is restricted to the payroll supervisor and her deputy. Access to transaction files is restricted to payroll staff who are responsible for the processing of fortnightly and monthly pay.
 
Prior to the introduction of the new payroll system, the payroll master and transaction files were kept in a separate database from the general ledger. At the end of each month, the IT staff imported transaction data from the payroll data base into the general ledger. Management decided to upgrade the existing accounting system to include a payroll system due to the frequent problems encountered by IT staff when importing data into the general ledger.  
 
 
Required:
 
(a)  Explain two relevant concerns you may have about the payroll application’s implementation.  (5 marks)
 
(b)  Identify and describe one application control that could be applied to salaries and wages expense to ensure the following:
                        i.  The occu
ence of the expense transactions.  (2.5 marks)
                        ii.  The accuracy of the expense transactions.    (2.5 marks)
 
(c)   Describe in detail an appropriate test
Answered Same Day May 04, 2020 ACC331 Charles Sturt University

Solution

Abr Writing answered on May 07 2020
135 Votes
1)
(a)
Financials comparison of Printer Solutions Ltd
    Printer Solutions Ltd
    
    
    
    Increase/ Decrease
    
    Analytical comments
    Income Statement $'000s
    2017
    2016
    Amount
    %
    
    Sales
    3080
    2660
    420
    16%
    In 2017, sales is increased in comparison to 2016
    Cost of Goods Sold
    2350
    2010
    340
    17%
    In 2017, Cost of Goods Sold is increased in comparison to 2016
    Gross Profit
    730
    650
    80
    12%
    In 2017, Gross Profit is increased in comparison to 2016
    Other Expenses
    350
    390
    -40
    -10%
    In 2017, Other Expenses is decreased in comparison to 2016
    Interest
    300
    120
    180
    150%
    In 2017, Interest is increased in comparison to 2016
    Net Profit (Loss)
    80
    140
    -60
    -43%
    In 2017, Net Profit is decreased in comparison to 2016
    
    
    
    
    
    
    Statement of Financial Position $'000s
    
    
    
    
    
    Cu
ent assets
    
    
    
    
    
    Trade and other receivables
    772
    660
    112
    17%
    In 2017, Trade and other receivables is increased due to increase in sale as compare to 2016
    Inventory
    680
    510
    170
    33%
    In 2017, inventory is increased in comparison to 2016
    Total cu
ent assets
    1452
    1170
    282
    24%
    
    Non-cu
ent assets
    
    
    
    
    
    Property, plant and equipment
    1810
    1500
    310
    21%
    In 2017, Property, Plant and equipment are increased in comparison to 2016
    Intangible assets
    40
    0
    40
    100%
    In 2017, Intangible assets is exist but in 2016 there is no Intangible Assets
    Total non-cu
ent assets
    1850
    1500
    350
    23%
    
    Total assets
    3302
    2670
    632
    24%
    
    Cu
ent liabilities
    
    
    
    
    
    Trade and other payables
    835
    795
    40
    5%
    In 2017, Trade and other payables are increased in comparison to 2016. The increased trade and other payables is due to increase in purchase.
    Cu
ent bo
owings - Bank Overdraft
    52
    40
    12
    30%
    In 2017, Cu
ent bo
owings - Bank Overdraft is increased in comparison to 2016
    Total cu
ent liabilities
    887
    835
    52
    6%
    
    Non-cu
ent liabilities
    
    
    
    
    
    Non-cu
ent bo
owings - Secured loan
    1500
    1000
    500
    50%
    In 2017, Secured loan is increased in comparison to 2016
    Total liabilities
    2387
    1835
    552
    30%
    
    Net Assets
    915
    835
    80
    10%
    
    Equity
    
    
    
    
    
    Share capital
    300
    300
    0
    0%
    No share capital is raised during the year of 2017.
    Retained earnings
    615
    535
    80
    15%
    Retained Earnings is increased due to increase in the profit in 2017, which is higher than 2016.
    Total Equity
    915
    835
    80
    10%
    
    Printing Solutions Ltd
    
    
    
    
    
    Variances
    
    Income Statement $'000s
    2017
    2016
    2015
    2014
    2017
    2016
    2015
    Analytical comments
    Sales
    3080
    2660
    2060
    1310
    420
    600
    750
    In 2017 sales increased at reduced rate in comparison to 2015 & 2016
    Cost of Goods Sold
    -2350
    -2010
    -1566
    -969
    -340
    -444
    -597
    In 2017 cost of goods sold are in decreasing trend in comparison to 2015 & 2016
    Gross Profit
    730
    650
    494
    341
    80
    156
    153
    In 2017 Gross profit is in decreasing in comparison to 2015 & 2016
    Other Expenses
    -350
    -390
    -270
    -140
    40
    -120
    -130
    In 2017 other expenses decreased in comparison to 2015 & 2016
    Interest
    -300
    -120
    -70
    -2
    -180
    -50
    -68
    In 2017 other expenses increased sharply in comparison to 2015 & 2016
    Net Profit (Loss)
    80
    140
    154
    199
    -60
    -14
    -45
    In 2017 Net Profit is decreased in comparison to 2015 & 2016
    
    0.169
    0.284
    0.616
    0
    
    
    
    
    Statement of Financial Position $'000s
    
    
    
    
    
    
    
    
    Cu
ent assets
    
    
    
    
    
    
    
    
    Trade and other receivables
    772
    660
    432
    382
    112
    228
    50
    Trade receivable reduced in comparison to 2016 showing efficient recovery
    Inventory
    680
    510
    350
    205
    170
    160
    145
    Inventory in increasing trend in comparison to 2016 & 2015
    Total cu
ent assets
    1452
    1170
    782
    587
    282
    388
    195
    Cu
ent assets reduced in comparison to 2016 showing efficient recovery
    Non-cu
ent assets
    
    
    
    
    
    
    
    
    Property, plant and equipment
    1810
    1500
    920
    370
    310
    580
    550
    Less addition in Property, plant and equipment in comparison to 2016 & 2015
    Intangible assets
    40
    
    
    
    40
    0
    0
    Intangible assets created in 2017
    Total non-cu
ent assets
    1850
    1500
    920
    370
    350
    580
    550
    
    Total assets
    3302
    2670
    1702
    957
    632
    968
    745
    
    Cu
ent liabilities
    
    
    
    
    
    
    
    
    Trade and other payables
    835
    795
    486
    400
    40
    309
    86
    Trade payable reduced in 2017 indicating timely payment to creditors
    Cu
ent bo
owings - Bank Overdraft
    52
    40
    21
    16
    12
    19
    5
    Less bank overdraft taken in comparison to 2016
    Total cu
ent liabilities
    887
    835
    507
    416
    52
    328
    91
    
    Non-cu
ent liabilities
    
    
    
    
    
    
    
    
    Non-cu
ent bo
owings - Secured loan
    1500
    1000
    500
    
    500
    500
    500
    Secured loan increased at constant rate
    Total liabilities
    2387
    1835
    1007
    416
    552
    828
    591
    
    Net Assets
    915
    835
    695
    541
    80
    140
    154
    
    Equity
    
    
    
    
    
    
    
    
    Share capital
    300
    300
    300
    300
    0
    0
    0
    
    Retained earnings
    615
    535
    395
    241
    80
    140
    154
    Retained earnings increased at reduced rate in comparison to 2016 & 2015
    Total Equity
    915
    835
    695
    541
    80
    140
    154
    
    Sl. No.
    Profitability Ratio
    2017
    2016
    2015
     
     
     
     
     
    1
    Gross Margin Ratio ( Gross Profit/Sale)
    23.70
    24.44
    23.98
    
     
     
     
     
    2
    Net Profit Ratio (Net Profit/Sale)
    2.60
    5.26
    7.48
    
     
     
     
     
    3
    Net Margin on Sale (*EBIT/ Sale)
    12.34
    9.77
    10.87
    
     
     
     
     
    
    *EBIT = Net Profit+Interest + Tax
    380
    260
    224
    
     
     
     
     
    4
    Return on Total Assets ( **Net Profit after Taxes/ Total Assets)
    3.06
    6.59
    11.40
    
     
     
     
     
    5
    Return on Equity ( **Net Profit after Taxes/ Shareholder Investment)
    33.67
    58.67
    64.67
    
     
     
     
     
    
    **Net Profit after Taxes= Net Profit+...
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