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ACCT3000 Mock Final Exam Paper


[Total marks = 60 Marks]

QUESTION 1 (15 Marks)

You are the external auditor for ABCM Pty Ltd, a merchandising company. You have performed the following audit procedures:

(a) A random sample of creditors was selected from the invoices and reconciliations

(where appropriate) and agreed to the accounts payable ledger.                       (3 Marks)

(b)  Developed  a  simple  spreadsheet  model  to  enable  the  recalculation  of wages expenses.

(3 Marks)

(c) Attended each monthly stock-take, selecting a sample of 130 items from the stock- sheets and agreeing them to the physical stock in the warehouse.                     (3 Marks)

(d) Gathered external confirmation from the financial controllers of two debtors of   ABCM Pty Ltd, regarding a total outstanding amount of $60,000 at balance date.

(3 Marks) (e) Asked one of your assistants to vouch the legal title documents pertaining to ABCM

Pty Ltd’s machineries in the factory.                                                                 (3 Marks)

Identify the key assertion that you are most likely testing with each of the above procedures and provide an explanation for your answer.








The auditor is tracing from the underlying source documents to the accounting records to check for any potential understatement issues. Tracing is likely being used to make sure, whether all the creditors that should have been recorded, have been recorded. Hance, the assertion of completeness.



The recalculation being performed here is to check the dollar value (accuracy assertion) of the payroll expenses recorded in the income statement.



Selected a sample of items from the stock sheets and physically verified their existence in the warehouse to confirm that the respective items of inventory which have been recorded actually exist. This audit procedure of conducting the audit trail from financial records to the source is called vouching and is conducted to test for overstatement issues.



External confirmation from the debtors is to verify and confirm that the both the outstanding debtors exist at balance date.


Rights Obligations


Verifying whether the entity has legal title or equivalent ownership rights to the machineries.


(15 Marks)

The head office of Bright Lights Ltd, wholesalers of electrical equipment, has asked you to review the system of control over cash collection at the Victorian branch because it suspects that irregularities are taking place. The branch is the largest single outlet of the company and has substantial annual sales invoiced by the branch.

Enquiries reveal the following procedures for invoicing sales and collecting cash. (Cash refers to currency and cheques).

1.   There are two invoice sets that are used for cash sales and credit sales respectively.

2.   When payment for cash sales is received by the cashier, one copy ofthe invoice is stamped as paid and filed alphabetically, and the other is given to the customer.

3.   Credit sales invoices are sent to the customers.

4.   Mail is opened by the secretary to the credit controller, who passes any cheques to the credit controller for his review, without recording the amounts received.

5.   The credit controller gives the cheques to the cashier by depositing them in a tray on the cashier’s desk.

6.   The cashier then makes a listing of the cheques, which is used by the credit controller for posting to the accounts receivable ledger.

7.   The cheques from credit customers and receipts from cash sales are banked daily by the cashier, except for once a week when sufficient money is retained to reimburse petty cash.

8.   The credit controller posts remittances to accounts receivable using a computerised accounting system and verifies the cash discount allowable.

9.   The credit controller obtains approval from head office to write off bad debts. Any subsequent  remittances  received  in  respect  of these  accounts  are  credited  to ‘sundry income’ .


(a) Describe control weaknesses in the accounting for cash receipts.           (7 Marks)

(b) Suggest improvements in internal control to prevent irregularities in the

collection of cash.                                                                                     (8 Marks)

(Total 15 Marks)




There is no control over receipts from cash sales. Money from cash sales could be       misappropriated before being banked.

Cash sales invoices should be checked for  numerical continuity and totalled daily by a person with no access to cash. The amount should be recorded in the sales journal,       included in the total credit to sales and        debited to a cash sales account in the           accounts receivable ledger.

There is a breakdown in segregation in that   the credit controller could misappropriate      cash from customers and conceal the theft by writing off the account or adjusting the          discounts allowed.

Mail should be opened by persons wholly unconnected with cash and accounts         receivable.

Only one person opens the mail. That person could misappropriate cash.

Two persons should be present at the mail   opening requiring them to be in collusion if either is to misappropriate cash unobserved.

No record is made of cash at the point of        opening the mail. Cash could subsequently be misappropriated, such as by the cashier, as     there is no record of it having been received.

All cash should be recorded by those opening the mail. This rough cashbook should be        checked against cash banked by an                 independent person such as the credit             controller.

Cash is not deposited intact daily. There is a  possibility of error arising if cash receipts are used directly for petty cash. In particular,      neither the cash receipt nor the petty cash      expenditure may be recorded.

All cash should be deposited intact daily. A  separate cheque should be written to              reimburse petty cash supported by petty cash vouchers.

A further lack of segregation is allowing the credit controller to post accounts receivable  and write off bad debts. The credit controller could collude with customers to cancel         amounts owing and conceal the fact by         writing off the debt.

The accounts receivable ledger should be       maintained by a person with no responsibility for handling or recording cash or for writing  off bad debts.


(15 Marks)

Consider each of the following independent and material situations. In each c a s e , assume that the financial report has been prepared and audited for the year ended 30 June 2010.

(a) Range Ltd, (Range) holds several parcels of land in suburban Sydney that are currently  zoned non-residential. Range has valued land  on a fair value  basis under AASB 116 Property, Plant and Equipment. This year,  however,  Range revalued the land by adopting a registered valuer's estimate of the market value of the land. This estimate included a substantial increase in value based on the general community expectation that the land will soon be rezoned for residential use.

(b) A part  of Prize  Ltd.'s operations  are in  South America.  Recent  government changes have  made  it  impossible  for  you  to  verify  the  key  accounts  of inventory, property, plant and equipment and cash and related income statement balances.

(c) Stonehouse  Ltd.'s  annual report includes  a detailed  graph  showing  sales and profit figures  for the past 10 years.  However,  there  are some inconsistencies between the graph and the figures in the audited financial report. Management does not want to change the graph because it would involve increased printing costs.

(d) Connect    Ltd.    (Connect)    is   a    subsidiary    of   a   Hong-Kong-based telecommunications  company,  Link  Ltd.  (Link).  Connect  has  suffered significant losses during its five years of operation. In previous years this did not pose a problem from an audit point of view, as  Link  pledged sufficient cash each year to cover Connect's annual reporting costs. However, Link is only able to pledge cash to cover three months of Connect's 2010  operating costs. Connect has no realistic prospect of obtaining finance from any other source. However, the directors are still hopeful of finding a financier and so have not mentioned the problem in the financial report.

Question 3 continued over the page

Question 3 continued

(e) The audit of Jones Ltd. Was extremely difficult, as the client did not maintain appropriate books and records during the year. Although the statutory registers were maintained,  the accounting  records were not updated  for the first nine months  of the year,  as the  company  was  without an accountant  during  this period.  An  accountant was  employed  in April  and  has tried  to reconstruct records  from the details of receipts  and  payments  available. However,  the accountant  has been  unable  to reconcile  the bank  account  and you  are not satisfied that all transactions that occurred during the year are reflected in the

financial report.


Assume that no adjustments are made. For each situation, identify the type of audit opinion required and explain the basis of your answers. (Total Marks: 5 X 3 Marks = 15 Marks)


(a) Qualified opinion

Sufficient and appropriate audit evidence has been obtained (ASA 500.6). Valuing the  land  as though  it had  already  been rezoned  residential  does not  appear to represent its fair value (AASB 116).  This  uncorrected misstatement reflects on  a disagreement with management. The effect  of this is material, but not so material and  pervasive as to require an adverse opinion (ASA 705.5). Hence, a  qualified opinion must be issued (ASA 705.7a).