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Assessment Task – Tutorial Questions Unit Code: HI6026 Unit Name: Audit, Assurance and Compliance Assignment: Tutorial Questions 2 Due: 11:30pm 26th June 2020 Weighting: 25% Total Assignment Marks: 50...

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Assessment Task – Tutorial Questions

Unit Code: HI6026

Unit Name: Audit, Assurance and Compliance

Assignment: Tutorial Questions 2

Due: 11:30pm 26th June 2020

Weighting: 25%

Total Assignment Marks: 50 marks

Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in
this unit

Unit Learning Outcomes Assessed:

1. Understand the audit planning procedures, evaluate the business risk and assess the internal
2. Prepare auditing procedures for transactions and balances by conducting control and substantive
3. Understand the auditor’s reporting obligations and events after the balance date.

Description: Each week students were provided with three tutorial questions of varying degrees of
difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard.
The Interactive Tutorials are designed to assist students with the process, skills and knowledge to
answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for
weeks 6 to 10 inclusive and submit these answers in a single document.

The questions to be answered are:

Q1 - Week 6

As the auditor of Komsu Air Limited (KAL) that manufactures and installs large commercial air-
conditioning systems. KAL typically has two or three large contracts (ranging from $6 million to $10
million each) in progress at any one time. The contracts usually take up to six months to complete,
although unexpected on-site difficulties can result in lengthy delays in completion (of up to 12
months). KAL finances its operations with a mixture of equity, long-term debt (secured by fixed assets)
and short-term bank loans.

It is now May 2017 and your planning of the audit of KAL for the year ended 30 June 2017 is nearing
completion. You have met with the management of KAL and, from those discussions and a review of
the preliminary information provided by KAL, you have identified several issues that may have
implications for the company’s ability to continue as a going concern. The relevant issues are as

 Competition in the industry is becoming more intense, with some customers now installing their
own systems.
 KAL’s bank has requested cash flow forecasts for the coming year to support the short-term loans.
It has indicated that it may need to withdraw funding or restructure debt if the forecasts are not
adequate. The review of work-in-progress indicates that all the contracts in progress at year end
are due for completion within six months of the balance date. There are no new contracts in place
for the coming year, although management has indicated that there are orders cu
ently being
negotiated. The nature of the business is such that sales will fluctuate considerably from year to
year depending on the timing of one or two large contracts.
 Assets consist chiefly of plant and equipment, some of which is specialised to the industry. Debtors
are significant, but recoverability is not considered an issue as the ongoing projects are with
eputable customers and management is not aware of any problems. Creditor balances are at
normal levels, and the company is in a positive working capital position.
 Included in provisions is a large provision for wa
anty for one of KAL’s jobs completed at a hotel
two years ago. It appears that the air-conditioning system is still not working and the hotel is now
equesting a substantial refund of the contract price.

Explain whether you believe the area of going concern should be assessed as high risk and mitigating
factors for KAL’s audit for the year ended 30 June XXXXXXXXXXmarks, maximum 300 words)

Appropriateness of Going Concern (5 marks) Mitigating Factors (5 marks)
Financial/ Operational/ Other Indicators

Q2- Week 7

Wares king supplies custom-fitted curtains and blinds to retail customers. It has recently expanded to
offer a wide variety of home decorating products through its six stores across the state. After some
initial problems with stock control it installed a new automated inventory system in April this year.
The system replaced another automated system that had been modified so often over the years that
the auditor had advised Wares’s management that they did not regard it as reliable. That is, the
auditor was unable to rely on the old system sufficiently to assess control risk for inventory as anything
less than high.

a) Explain the normal process an auditor would expect to find in the client’s systems governing
changes to computer programs. Why is an auditor concerned about program changes? (3 marks,
maximum 100 words)
) Wares kings’ financial year-end is 31 December. Does the auditor need to obtain evidence about
the performance of the inventory control system from every month in the year or from a sample
of months? Explain. (3 marks, maximum 100 words)
c) If the auditor conducts test of the inventory controls at an interim date, is it appropriate to
conclude that the controls also relate to the end of period date? Why? (4 marks, maximum 150

No Table is required

Q3- Week 8

You are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for
the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in
Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major
suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem,
Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic
components to Vesta Tech Ltd through his private company. There is no formal agreement in place
with Jonathon Marshall, however, the goods are being provided at competitive prices. You are
concerned about the electronic components that Jonathon Marshall’s company is supplying, because
his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining
that they are of poor quality.

The board has informed you that although sales have been strong this year, Vesta Tech Ltd has
suffered significant cash flow problems because a major debtor, Mimosa Ltd, is experiencing financial
difficulties. As a result, Mimosa Ltd is taking well over 120 days to pay outstanding amounts, despite
Mimosa Ltd’s terms of trade being payment within 30 days. Mimosa Ltd makes up 40 per cent of Vesta
Tech Ltd’s sales and the board has been reluctant to take any action that might adversely affect those
sales. As a result, Vesta Tech Ltd has had to increase its dependency on its line of credit, and this has
caused it to temporarily
each the debt to equity ratio required in its loan covenant with WestPac
Bank Ltd.

The management of CGL is cu
ently reviewing the structure of its audit committee to ensure that it
complies with the requirements of the ASX Corporate Governance Principles and Recommendations.

However, the board is confused by the reference in the ASX Corporate Governance Principles and
Recommendations to both independent directors and non-executive directors, as they thought that
they were the same thing. As a result, they have sought your advice concerning the structure of their
audit committee.

a) Identify two key account balances at risk of material misstatement. (2 marks)
) For each account balance identify the key assertion at risk. (2 marks)
c) Explain why the account balance and assertion are at risk. (2 marks, maximum 100 words)
d) Describe one (1) substantive test of detail that you would undertake for each account to address
the assertion and risk identified. (4 marks, maximum 200 words)

(a) Key account
alance at risk:
(b) Key
assertion at
(c) Explanation: (d) Substantive test of detail/ Audit

Q4 - Week 9

a) What are key audit matters? How do these affect the format of the audit report? (2 marks,
maximum 200 words)
) Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is
writing a report for his audit partner based on these results and will be attending a meeting
ow with the partner and representatives of the company to discuss them. The issue will be
whether the financial report should be amended, or additional notes included for these
subsequent events.

Many of the items are not material and Stewart will recommend that no action be taken with
espect to these. However, there are several items that Stewart believes are material and should
e discussed at the meeting. These are as follows.

(a) The board is planning to issue shares in a private placement on 15 August. (2 marks)
(b) The share issue is to fund the purchase of a 60 per cent stake in another company. The
negotiations are in the final stages and although the contract is not yet signed it will be signed
y 15 August. (2 marks)
(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for
illness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant in
the 1990s. This is the tenth such writ lodged, and the client has denied responsibility in all
cases because it was unreasonable to believe at that time that these chemicals had adverse
health effects. The claimant has new scientific evidence that counters this defence. (2 marks)
(d) The review of subsequent cash receipts has revealed that several of the trade receivables that
were considered doubtful have now been paid. However, the audit procedures have shown
that a large debtor that was considered safe at 30 June was unexpectedly declared bankrupt
on 20 July. (2 marks)

The year-end for the company is 30 June and the audit report is due to be signed on 20 August.

For each of the items above, explain what type of subsequent event it is and the appropriate
treatment of the item in the financial report. (8 marks, maximum 300 words)

Part A: Like an essay type presentation
Part B:
Issues Event/ Accounting Treatment (1 mark) Explanation (1 mark)
(a)(/(b)/ Write 1
Answered Same Day Jun 15, 2021 HI6026


Harshit answered on Jun 22 2021
125 Votes
    Serial Numbe
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    Answer to Question 1
    Answer to Question 2
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    Answer to Question 4
    Answer to Question 5
The area of going concern should be assessed as high risk and mitigating factors for KAL’s audit for the year ended 30 June 2017 because of the following reasons:
    Appropriateness of Going Concern
    Mitigating Factors
    This is other indicator as there would be decrease the demand of the product and the competition will increase.
    The customers are installing the systems in their own units which would decrease the demand of the product and the competition will increase.
    Financial indicators: As the company will not be able to maintain the cash flow to support the short-term loans of the company.
    The company has not been able to send the cash flow statement of the company and the restructuring of debt is important as the forecast of the company are not adequate. If the company is able to recover cash from the debtors and other cu
ent assets, the company will be able to generate enough cash flow for the short term loans.
    Operational Indicators: As the contracts that the company presently has are about to get over shortly and the company do not have any new contracts for the coming year.
    The company do not have any major contracts cu
ently and the company has not been able to get any new contract although the management has indicated that the negotiations for two new contracts are going on but the company has note been able to secure any new major contract for a year which shut the operations of the company because of no demand. If the company is able to secure the major contracts along with two major contracts, the company would be able to mitigate the risk of the going concern
(a) The auditor would expect to find documentation of the client about the computer programs changes. If major amendments were made by the client to the computer programs, the discussion of this will reach the board level. The senior management will allow for the other mentioned changes as they find appropriate. The change in the level of authorization of the changes would be present in all the cases which would include complete documentation of the amendments as made the effects of the same on the client’s reporting and operations. Over and above the documenting the amendments to the programs, the auditor would find a log of changes which may...

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