1 Assessment Task – Tutorial Questions Assignment

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Assessment Task – Tutorial Questions Assignment
Unit Code: HA3032
Unit Name: Auditing
Assignment: Tutorial Questions Assignment (Individual)
Due: Week 13 - Friday 16th October 2020 (11:30PM)
Weighting: 50%
Total Mark: 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. Demonstrate a thorough understanding of the reporting
requirements of
auditing standards relating to auditors’ reports.

2. Explain how the audit planning process directs the auditor to
obtain adequate
evidence to support audit findings and address the importance
of materiality in
an audit.
3. Explain the process of audit planning to determine risk
assessments and an overall audit
strategy.
4. Explain the auditors’ obligations with regards to
understanding the client’s
business and internal controls and assessing business risks.
5. Achieve a high level of competence in applying prescribed
auditing techniques
in gathering evidence to satisfy audit assertions.
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 from weeks
3 ,4 ,5 ,6 ,7 & 11 inclusive and submit these answers in a single
document.
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The questions to be answered are:
Question 1 (7 marks)
(This question is from the Week 3 Tutorial)
You have reviewed the work performed by your assistant,
Raymond Snow, on the audit of Tin Ltd
for the year ended 30 June 20X8 and you have noted the
following two independent matters:
(i) In testing investments in listed securities, Raymond selected
all shareholdings with a market
value above $200,000 and checked them to the closing market
value reported by the

Australian Stock Exchange (ASX) to determine the net
realisable value of each shareholding.
The items tested totaled $5,500,000 or 60% of the total bal ance.
Of the items tested, only
one error of $110,000 was discovered. Raymond concluded that
the error was not itself
material, as it was only 2% of the balance tested. He
extrapolated this error to the total
population and estimated that the error for the total population
would be $185,000, which
was also immaterial. Therefore, he concluded that the
investments in listed securities were
fairly stated at the lower of cost or net realisable value.
(ii) Tin Ltd has 1,000 stock lines that are maintained on a
perpetual inventory system. Stock is
counted on a cyclical basis so that all lines are covered at least
once per year. Raymond
attended the March stocktake to observe the counting
procedures and conducted 20 test
counts from the floor to the client’s count sheets and 20 from
the client’s count sheets to
the floor. He uncovered two minor discrepancies of one item
each, which he considered to
be immaterial. The client also uncovered five minor
discrepancies between the perpetual
records and the actual quantity on hand. None of these
discrepancies were adjusted on the
perpetual records, as the amounts involved only totaled $50,000
and were considered to be
immaterial. Raymond concluded that no further work was
considered necessary on stock
quantities at year end.

Required:
(a) In your own words, explain what is meant by sufficient
appropriate audit evidence.
(2 marks)
(b) Explain whether sufficient appropriate audit evidence has
been obtained for each of the
above situations. Give reasons for your answer. (5 marks)
(Word Limit: Minimum of 250 words. Maximum of 300 words)
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The following financial ratios have been calculated for Nova
Ltd for the year ended 30 June 2008:
Ratio Actual
results
Budgeted
results

Previous
year
Industry Average
Current ratio 1.97 1.92 1.87 1.92
Quick asset ratio 1.06 1.06 1.06 1.11
Inventory turnover 4.21 4.91 4.86 4.76
Net profit ratio 0.05 0.03 0.03 0.03
Gross margin 0.65 0.59 0.61 0.61
Required:
Provide four (4) possible explanations for the results of the
various ratios for Nova Ltd and explain
their implications for the audit. (7marks)
(Word Limit: Minimum of 200 words. Maximum 250 of words)
Everyday Supplies Pty Ltd is a single-store retailer that sells a
variety of tools, garden supplies,
timber, small appliances, and electrical fixtures to the public,
although about half of Everyday
Supplies’ sales are to construction contractors on account.

Retail customers pay for merchandise by cash or credit card at
cash registers when merchandise is
purchased. A contractor may purchase merchandise on account,
if approved by the credit manager
based only on the manager’s familiarity with the contractor’s
reputation. After credit is approved,
the sales associate files a prenumbered charge form with the
accounts receivable supervisor to set
up the receivable.
The accounts receivable supervisor independently verifies the
pricing and other details on the
charge form by reference to a management - authorised price
list, corrects any errors, prepares
the invoice, and supervises a part-time employee who mails the
invoice to the contractor. The
accounts receivable supervisor electronically posts the details of
the invoice in the accounts
receivable subsidiary ledger; simultaneously, the transaction’s
details are transmitted to the
bookkeeper. The accounts receivable supervisor also prepares a
monthly computer-generated
accounts receivable subsidiary ledger without a reconciliation
with the accounts receivable control
account and a monthly report of overdue accounts.
4
The cash receipts functions are performed by the cashier, who

also supervises the cash register
clerks. The cashier opens the mail, compares each cheque with
the enclosed remittance advice,
stamps each cheque “for deposit only”, and lists cheques for
deposit. The cashier then gives the
remittance advices to the bookkeeper for recording. The cashier
deposits the cheques daily,
separate from the daily deposit of cash register receipts. The
cashier retains the verified deposit
slips to assist in reconciling the monthly bank statements, but
forwards to the bookkeeper a copy
of the daily cash register summary. The cashier does not have
access to the journals or ledgers.
The bookkeeper receives the details of transactions from the
accounts receivable supervisor and
the cashier for journalising and positing to the general ledger.
After recording the remittance
advices received from the cashier, the bookkeeper electronically
transmits the remittance
information to the accounts receivable supervisor for subsidiary
ledger updating. The bookkeeper
sends monthly statements to contractors with unpaid balances
upon receipt of the monthly report
of overdue balances from the accounts receivable supervisor.
The bookkeeper authorises the
accounts receivable supervisor to write off accounts as
uncollectible when six months have passed
since the initial overdue notice was sent. At this time, the credit
manager is notified by the
bookkeeper not to grant additional credit to that contractor.
Required:

Describe five (5) internal control weaknesses in Everyday
Supplies’ internal control for the cash
receipts and billing functions (5 marks) and explain why they
are weaknesses for two (2) that you
have identified. (2 marks)
During your review of the audit field work completed by a new
junior employee of the audit firm,
John Smith, you have noted many areas which require additional
review notes. John, who has just
completed the interim audit of Taxon Ltd for the year ended 30
June 2019, has just performed
testing of controls. When testing controls over payments made
to related parties, there should be
evidence of approval and sign-off by the chief financial officer
(CFO). John selected a sample of
payments made to related parties and vouched them back to the
electronic funds transfer (EFT)
forms to sight the CFO’s signature of approval. Based on a
sample of ten payments, six had been
approved by the CFO in writing. However, the remaining four
EFT forms (for immaterial amounts)
did not have the CFO’s signature, but John noted that the CFO
had given verbal approval. John

concluded that because all internal controls were working, the
audit team could use analytical
procedures alone to audit payments made to related parties.
Required:
Based on the results of the testing of controls outlined above,
determine whether John has arrived
at the appropriate conclusion? (1 mark)
Justify your answer by addressing the following areas: the risks
associated with related party
transactions, and the reliability of controls at Taxon Ltd. (6
marks)
5
Magi Chen is the managing director of Sun Construction Pty
Ltd, a family owned business that
provides construction services. As Magi is interested in
purchasing some new construction
equipment’s for her business, she has approached her local bank
for finance. The bank has asked

that Magi provide an audited financial statement to assist them
in considering her loan application.
Magi has approached your audit firm for this service and you
have been allocated the task of
auditing Sun Construction for the year ended 30 June 2019. You
have undertaken a preliminary
review of the business and determined that a substantive testing
approach would be suitable and
appropriate. You are currently preparing an audit program for
the revenue cycle. The following
information has been obtained from your review:
• Magi usually works 120 hours a fortnight. Part of this time is
spent travelling between different
clients and is not charged to the clients. The remaining time is
charged at $60 per hour, regardless
of the task undertaken.
• Customers typically pay Magi in cash for the work
undertaken, except for a small number of
regular small-business customers. Magi allows these customers
to pay on account by bank transfer
on a monthly basis.
• Magi supplies each cash customer with a written receipt,
prepared manually from a receipt book
purchased at the local news-agency. The book contains pre-
numbered blank receipts, which are
completed in duplicate.
Required:
For each of the assertions of occurrence, completeness and
accuracy, identify a procedure(s) you
could use to audit Sun Construction's revenue. (11 marks)

Several firms have internal audit function to govern their
business operations. The head of internal
audit department of one of your clients has invited you to give a
talk to the members of his
department during their annual training week. He would like
your views on the different roles of
external and internal auditors, the type of work that each carry
out and their reporting
responsibilities.
Required:
Draft notes that you will use when giving your talk, paying
particular attention to the differences
and similarities of the following features of internal and
external auditors:
(i) independence; (3 marks)
(ii) the work carried out on systems of internal control and
operations; (4 marks)
(iii) reporting responsibilities. (4 marks)
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Submission Directions
The assignment will be submitted via Blackboard. Each student
will be permitted only ONE
submission to Blackboard. You need to ensure that the
document submitted is the correct
one.
Academic Integrity
Holmes Institute is committed to ensuring and upholding
Academic Integrity, as Academic
Integrity is integral to maintaining academic quality and the
reputation of Holmes’ graduates.
Accordingly, all assessment tasks need to comply with academic
integrity guidelines. Table 1
identifies the six categories of Academic Integrity breaches. If
you have any questions about
Academic Integrity issues related to your assessment tasks,
please consult your lecturer or
tutor for relevant referencing guidelines and support resources.
Many of these resources can
also be found through the Study Skills link on Blackboard.
Academic Integrity breaches are a serious offence punishable by

penalties that may range
from deduction of marks, failure of the assessment task or unit
involved, suspension of
course enrolment, or cancellation of course enrolment.
Table 1: Six Categories of Academic Integrity breaches
Plagiarism Reproducing the work of someone else without
attribution.
When a student submits their own work on multiple
occasions this is known as self-plagiarism.
Collusion Working with one or more other individuals to
complete an
assignment, in a way that is not authorised.
Copying Reproducing and submitting the work of another
student,
with or without their knowledge. If a student fails to take
reasonable precautions to prevent their own original work
from being copied, this may also be considered an offence.
Impersonation Falsely presenting oneself, or engaging someone
else to
present as oneself, in an in-person examination.

Contract cheating Contracting a third party to complete an
assessment task,
generally in exchange for money or other manner of
payment.
Data fabrication and
falsification
Manipulating or inventing data with the intent of supporting
false conclusions, including manipulating images.
Source: INQAAHE, 2020
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If any words or ideas used the assignment submission do not
represent your original words
or ideas, you must cite all relevant sources and make clear the
extent to which such sources
were used.
In addition, written assignments that are similar or identical to

those of another student is
also a violation of the Holmes Institute’s Academic Conduct
and Integrity policy. The
consequence for a violation of this policy can incur a range of
penalties varying from a 50%
penalty through suspension of enrolment. The penalty would be
dependent on the extent
of academic misconduct and your history of academic
misconduct issues.
All assessments will be automatically submitted to Safe-Assign
to assess their originality.
Further Information:
For further information and additional learning resources please
refer to your Discussion
Board for the unit.

1 Assessment Task – Tutorial Questions Assignment

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