Case study- Question and Answer - Audit and Personal Tax - Audit Assignment Case Study Ruthies is a fast expanding firm of chartered certified accountants with a growing number of audit clients....

Solution:
Part a)
The ten major matters that have inclined Mr River to assess as “high”, the inherent risk
associated with the inspection of monetary statement of Jonp Limited are:
- The financial director of the company is the son of Managing Director. It is against the
Corporation Act because the appointment of Financial Director in this case may affect
the company objective. If the appointment is for the personal interest than MD has to
give in writing about his personal interest, if MD fails to give in writing than he will
liable to criminal and civil proceedings.
- The percentage of holding is 70% of shareholding is with directors and 30% is with an
unconnected individual investor who has given loan to the company of amount
$500000. Since that individual investor holds 30% shareholding, there may be chances
that the loan which is given to company may be at higher interest rate that the rate in
market so that company can book more expenses and profit amount will decrease
which in result decreased the tax burden on company. This point will influence the
examiner to assess inherent risk as “ high”
- The previous auditors were not replaced for quite long time; there may be chances that
the auditor and the company both are related and doing misappropriation with
accounts.
- Internal Control of Jonp Limited is not proper, the executive and subordinate manager
had planned in perpetrating a fraud against the company by embezzling cu
ency
outflow made by clients for repair works ca
ied out.
- It is found that the employees of the organization have over trotted the internal controls
so as to ensure that sales transaction denoted by these repairs was not noted in the
company’s accounting records.
- The company is not complying through the requirement of law which is mandatory to
follow. If the concern is not complying with the law than the danger that the monetary
statement are not showing accurate and fair value increases.
- Third party confirmation is the best; auditors generally rely on third party confirmation.
It is better to take third party confirmation in cases where it is seen that financial
statements are not true. Third party is the reliable source. When company asks the
management that auditors are planning to take third party confirmation than the
management disapprove that and gave invalid reason. This raises the doubt in auditors
mind and inherent risk increases.
- Since it is assumed that the directors are interested in many transactions of the
company, the financial statements might not show the true and fair value. The interest
of the directors has a direct impact on the truthfulness and fairness of financial
statements.
- The internal check policy will not work here because every next employee feels jealous
with each other. If internal check policy will imply than employees in jealous will pin
point the fault of others which in real does not exist.
- The managers are playing double role. They are behind all the misdeeds.
Part b)
The audit procedures that auditor should ca
y out to obtain assurance that the amount of the
provisions of the ex-employees accident is co
ect are:
- Confirmation with the ex-employees is must because that is the best source to confirm that
whether the employees in real are getting the amount or not.
- Compliance with law is to be checked because there may be chances that the amount of
provision shown in the financial statements is of high amount than in...