Student Number: (enter on the line below)
Student Name: (enter on the line below)
HI6026
AUDIT, ASSURANCE AND COMPLIANCE
FINAL ASSESSMENT
TRIMESTER 3, 2021
Assessment Weight: 50 total marks
Instructions:
? All questions must be answered by using the answer boxes provided in this paper.
? Completed answers must be submitted to Blackboard by the published due date and time.
Please ensure you follow the submission instructions at the end of this paper.
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit.
Question 1 (7 marks)
Locky Privetra is considering investing in Sea Lounge Ltd (SLL), a large cruise ship company. Locky has reviewed SLLL’s 2020 audited financial report, which shows a net profit of $700 000 and a net asset position of $3 million. The auditor’s report is unmodified, stating that in the auditor’s opinion, the financial report gives a true and fair view of the entity’s financial performance and financial position. As a result, Locky is now confident about her proposed investment in SLL, as she believes that the auditor’s report provides absolute assurance about the accuracy of the financial report, including the healthy profit and net asset figures, and there is no chance of the company going bankrupt. Further, while she is aware of the management frauds that have occurred in some companies in recent years, she is comforted by the fact that she believes that the unmodified auditor’s report means that no fraud has occurred within SLL.
ANSWER: ** Answer box will enlarge as you type
Question 2 (7 marks)
Ronald Partners is negotiating with its audit client (Maxim Industries) for its upcoming audit fees. Maxim Industries’ audit partner offers the company a discounted audit fee if it also gives all its tax consulting work to the firm.
Required
Explain whether the managing partner at Ronald Partners should agree to approve the deal negotiated by the partner in charge of Maxim Industries’ audit.
ANSWER:
Question 3 (7 marks)
All companies are required to disclose in their annual reports the amounts paid to their auditors for both the financial report audit and any other services performed for the company.
Required
Obtain a copy of a recent annual report (most companies make their annual reports available on the company’s website) and find the disclosures explaining the amounts paid to auditors. How much was the auditor paid for the audit, non-assurance, or other services?
ANSWER:
Question 4 (7 marks)
You are the auditor of Birham Ltd and are in the process of completing the audit for the year ended 30 June 2020.
There are two outstanding matters highlighted in your firm’s completion documentation:
(i) You have heard rumours that Birham Ltd is ready to merge with a competitor. If correct, this may have disclosure implications. Management advises you that although they have had several meetings with the competitor’s management in question, no such merger is currently planned. Management has offered to make written representations confirming their intentions.
(ii) The invoices to support the cost of a significant purchase of plant and machinery cannot be traced. Management has offered to make written representations confirming the cost of the plant and machinery.
Required:
(a) What is the purpose of a management representation letter? (3 marks)
ANSWER a):
(b) Are the management’s written representations sufficient to resolve the two outstanding matters noted above? Please justify your answer. (4 marks)
ANSWER b):
Question 5 (11 marks)
Healesville Sanctuary is a family-owned and operated wildlife park located in Melbourne. Healesville Sanctuary has more than 150 animal species, some of which are loaned from overseas animal parks. Healesville Sanctuary has two divisions for selling merchandise: a retail operation that sells food, beverages, shirts, souvenirs and other novelties to visitors within the park, and a wholesale operation that sells toys to department stores.
The following management figures are relevant for the year ended 30 June 2020:
$
Total assets 69 120 000
Total current assets 34 560 000
Inventories 28 800 000
Net assets 51 840 000
Profit after income tax 9 792 000
The company tax rate is 30 per cent.
During the conduct of the audit, the following items of interest were noted by the audit team:
i. Due to an electrical contractor accidentally drilling through a power cable, all invoices for items sold through Healesville Sanctuary’s wholesale operations on 22 and 23 June had to be manually prepared. Many of the manual invoices from this period omitted some of the items that were sold to department stores. The total value of the omitted items was $30 666 (2.75 marks).
ii. Healesville Sanctuary lodged its tax return late and received a substantial fine. Payment of the fine was not made by the required date, and liability for the amount has not been recorded. The fine was $300 000 (2.75 marks).
iii. Some of the toy crocodile products distributed to department stores by Healesville Sanctuary’s wholesale operations were incorrectly priced due to a special one-off ‘Crocodile Creature Month’ discount not being reflected in the price the department stores were charged. These incorrect sales were made on 23 June 2018. The total misstatement arising from the incorrect sales was $14 261 (2.75 marks).
iv. A number of senior executives flew to an animal conference in Melbourne. From the airport, they hired cars and parked outside the hotel for three nights, ignoring ‘No parking’ signs. The resulting parking fines were charged against Healesville Sanctuary’s meals and entertainment account. The parking fines, totalling $1053, were all due before 30 June 2020 (2.75 marks).
Required:
For each of the individual statements listed, explain whether the item should be reported to management or is clearly trivial.
ANSWER:
Question 6 (11 marks)
Oscar Wylee Women Glass Ltd is a supplier of fashion women sunglasses. The audit report for the year ended 30 June 2021 was signed on 8 August 2021, and the financial report was mailed to shareholders on 12 August.
Consider the following independent events. Assume that each event is material.
i. On 5 July, Oscar Wylee entered into a new contract to deliver sunglasses to Specsavers, a new major department store. The contract was similar to other previously contracted contracts (2.75 marks).
ii. Oscar Wylee has financed huge funds in developing a new type of solid sunglasses lens. On 8 July, Oscar Wylee applied for a patent for the lens, only to identify that a competitor had lodged a similar application on 25 June. The granting of Oscar Wylee application is now of major concern (2.75 marks).
iii. One of Oscar Wylee major customers, Phoenix Pty Ltd, suffered a fire on 23 July. Since Phoenix Pty Ltd was uninsured, it is unlikely that their accounts receivable balance will be paid (2.75 marks).
iv. On 27 July, a well-known financial planner advised his clients not to invest in Oscar Wylee due to poor long-term growth prospects. The market price for Oscar Wylee Accessories’ shares subsequently declined by 50% (2.75 marks).
ANSWER:
END OF FINAL ASSESSMENT
Submission instructions:
? Save submission with your STUDENT ID NUMBER and UNIT CODE e.g. EMV54897 HI6026
? Submission must be in MICROSOFT WORD FORMAT ONLY
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? Only one submission is accepted. Please ensure your submission is the correct document as special consideration is not given if you make a mistake.
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