DEDUCCIONES POR INCUMPLIMIENTOS

(a) Identify and explain each of the FIVE fundamental principles contained within ACCA’s Code of Ethics and

Conduct. (5 marks)

(b) Rose Leisure Club Co (Rose) operates a chain of health and fitness clubs. Its year end was 31 October 20X2.

You are the audit manager and the year-end audit is due to commence shortly. The following three matters have been brought to your attention.

(i) Trade payables and accruals

Rose’s finance director has notified you that an error occurred in the closing of the purchase ledger at the year end. Rather than it closing on 1 November, it accidentally closed one week earlier on 25 October. All purchase invoices received between 25 October and the year end have been posted to

the 20X3 year-end purchase ledger. (6 marks)

(ii) Receivables

Rose’s trade receivables have historically been low as most members pay monthly in advance. However, during the year a number of companies have taken up group memberships at Rose and hence the receivables balance is now material. The audit senior has undertaken a receivables

circularisation for the balances at the year end; however, there are a number who have not responded

and a number of responses with differences. (5 marks)

(iii) Reorganisation

The company recently announced its plans to reorganise its health and fitness clubs. This will involve closing some clubs for refurbishment, retraining some existing staff and disposing of some surplus assets. These plans were agreed at a board meeting in October and announced to their shareholders on 29 October. Rose is proposing to make a reorganisation provision in the financial statements.

(4 marks)

Required

Describe substantive procedures you would perform to obtain sufficient and appropriate audit evidence in relation to the above three matters.

Note: The mark allocation is shown against each of the three matters above.

(Total = 20 marks)

97 Donald (06/11)

39 mins

(a) The auditor has a responsibility to design audit procedures to obtain sufficient and appropriate evidence.

There are various audit procedures for obtaining evidence, such as external confirmation.

Required

Apart from external confirmation:

(i) State and explain FIVE procedures for obtaining evidence and;

(ii) For each procedure, describe an example relevant to the audit of purchases and other expenses.

(10 marks)

(b) Donald Co operates an airline business. The company’s year end is 31 July 20X1.

You are the audit senior and you have started planning the audit. Your manager has asked you to have a meeting with the client and to identify any relevant audit risks so that the audit plan can be completed. From your meeting you ascertain the following:

In order to expand their flight network, Donald Co will need to acquire more airplanes; they have placed orders for another six planes at an estimated total cost of $20m and the company is not sure whether these planes will be received by the year end. In addition the company has spent an estimated $15m on

refurbishing their existing planes. In order to fund the expansion Donald Co has applied for a loan of $25m. It has yet to hear from the bank as to whether it will lend them the money.

The company receives bookings from travel agents as well as directly via their website. The travel agents are given a 90-day credit period to pay Donald Co, however, due to difficult trading conditions a number of the receivables are struggling to pay. The website was launched in 2010 and has consistently encountered difficulties with customer complaints that tickets have been booked and paid for online but Donald Co has no record of them and hence has sold the seat to another customer.

Donald Co used to sell tickets via a large call centre located near to their head office. However, in May they closed it down and made the large workforce redundant.

Required

Using the information provided, describe FIVE audit risks and explain the auditor’s response to each risk in

planning the audit of Donald Co. (10 marks)

(Total = 20 marks)

98 Rocks Forever (AIR 12/05) (amended)

39 mins

You are the audit manager in the firm of DeCe & Co, an audit firm with ten national offices. You are planning the audit of Rocks Forever, one of your clients.

Rocks Forever. purchases diamond jewellery from three manufacturers. The jewellery is then sold from Rocks Forever's four shops. This is the only client your firm has in the diamond industry.

They have also said they will not depreciate the revalued amount allocated to the store’s building because they maintain the building to a high standard.

You are planning to attend the physical inventory count for Rocks Forever. Inventory is the largest account on the statement of financial position with each of the four shops holding material amounts. Due to the high value of the inventory, all shops will be visited and test counts performed.

With the permission of the directors of Rocks Forever, you have employed UJ, a firm of specialist diamond valuers who will also be in attendance. UJ will verify that the jewellery is, in fact, made from diamonds and that the jewellery is saleable with respect to current trends in fashion. UJ will also suggest, on a sample basis, the value of specific items of jewellery.

Counting will be carried out by shop staff in teams of two using pre-numbered count sheets.

Required

(a) Briefly describe the main risks associated with inventory in a company such as Rocks Forever. (3 marks)

(b) Describe FOUR audit procedures that should be used in obtaining evidence in relation to the inventory count

of inventory held in the shops. For each procedure, explain the reason for the procedure. (8 marks)

(c) Explain the factors you should consider when placing reliance on the work of UJ. (5 marks)

(d) Describe the audit procedures you should perform to ensure that jewellery inventory is valued correctly.

(4 marks) (Total = 20 marks)