ACCT3000 Mock Final Exam Paper
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ACCT3000 Mock Final Exam Paper
ANSWER ALL FOUR (4) QUESTIONS
[Total Marks = 60 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.
(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 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)
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.
(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
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)
Your client is Queenscorp Ltd, a diversified business operating throughout Australia. Year- end was 30 June 2011, the auditor’s report was signed on 31 July 2011 and the financial statements were mailed to shareholders on 14 August 2011.
During your subsequent events review you noted the following independent and material items:
1. Queenscorp has been involved in a legal dispute with a competitor for a number of years. The dispute relates to alleged breaches of copyright by Queenscorp. On 27th July you discovered that Queenscorp had settled legal action out of court on terms more favourable than expected.
2. On 10th July one of Queenscorp’s major product lines developed a fault that rendered the product unusable. Queenscorp became aware of the fault on 30 July. Although the fault posed no safety risks to consumers, Queenscorp decided to launch a full product recall on the following day.
3. Queenscorp has invested significant funds in developing a new type of cholesterol- reducing margarine. On 7th July Queenscorp applied for a patent for the margarine, only to discover that the competitor has lodged a similar application previously. The granting of Queenscorp’s application is now in doubt.
4. Queenscorp’s bank loan is conditional upon certain ratios being maintained at all times. On 20th August you discovered that one of the ratios was breached for a 24- hour period on 18th August.
5. In early June, one of Queenscorp’s largest debtors informed Queenscorp that it was experiencing serious financial difficulties. On 5 July, Queenscorp was informed that the debtor had gone into receivership. Preliminary reports suggest Queenscorp will recover only 10 cents in the dollar ofthe outstanding debt.
(1) Describe your obligations as the auditor to each of the above subsequent events. (5 X 1 Mark = 5 Marks)
(2) For each of the events described above, select the appropriate action from the list
below and justify your response:
A Adjust the 30 June 2011 financial report.
B Disclose the information in a note to the 30 June 2011 financial
C Request the client recall the 30 June 2011 financial report for
D No action is required.
(5 X 1 Mark = 5 Marks)
(3) What additional information would you obtain in relation to each of the events described above?
(5 X 1 Mark = 5 Marks) (Total 15 Marks)