BUSINESS SCHOOL
ACCT3600 Accounting and auditing in practice
Additional practice questions
Semester 1, 2024
Disclaimer: The following questions serve illustration and practice purposes only. They
do NOT indicate potential topics or questions for the upcoming final exam and
replacement final exam.
Short Answer Questions
Question 1
You are currently the audit senior for FIZER Limited and you have obtained the following info
for the year end 30 June 20X9:
•You have been the auditors for FIZER for the last 5 years and each year an unmodified
audit report has been issued.
•FIZER manufactures hi-tech car components and exports exclusively to China, Korea
and Japan. The Korean market has grown exponentially in the last few years and ha
s
become the company’s most significant customer base, representing 65% of FIZERs
revenue. Some of the contracts are paid in $AUD, whilst some in $US and local
currency. Even with the effects of the GFC reducing there appears to be some concern
over the delayed payment by FIZER’s international customers.
•The high Australian dollar coupled with the GFC has had a significant impact on FIZER
with management considering moving inventory production to India, as international
completion in the overseas market has squeezed profit margins on the company’
s
products, and competitors have been able to bring to the market
new technology fast
than FIZER as competitors are able to invest more funds in the R&D activities
Required:
(a
). In respect of auditing for the year ended 30 June 20x9, identify 2 key Balance Sheet
accounts most at risk of misstatement, and brief explanation as to why account at risk of
misstatement and identify the key assertion affected?
(b)For each of the accounts and the relevant assertion identified in (a) describe in specifi
c
terms a substantive audit procedure which would best address the risk.
(
c) Outline one (1) exception report which could be produced from FIZER computer database
by GAS to help the auditor with substantive testing. Your answer should indicate the details
included in the report (the headings etc), the assertion targeted and h
ow the report will be used
by the auditor.
Question 2
You are the audit senior on the Harvey Equipment Pty Ltd engagement, a large retailer
operating stores throughout Australia. As part of the planning work, you have performed
analytical procedures and produced the following results:
Industry
Average
Current
Year
Results
Previous
Year
Results
Current ratio 1.50 1.35 2.50
Debt/Equity ratio 0.35 0.65 0.45
Times Interest Earned 4 4.5 3.5
Accounts Receivable
T/O in days
34 33 34
Net Profit after Interest
and Tax
495,000 505,000
Sales 1,105,000 1,200,000
You are also aware of the following information
-Harvey has recently borrowed additional loans from major banks.
-Harvey has been facing increasing competitions from online retailers.
Required:
From the data and information above, identify the key account (one only) at
significant risk and explain why you consider that account to be at risk.
Also identify the prime assertion most at risk for the auditor.
Question 3
Your client, ‘Carmel’s Kitchen’ (CK) is about to install the latest software package after resisting
for many years. The system will be used to record employee information, calculate the monthly
payroll and assist with the annual reconciliation of tax deductions. The following data fields are
currently anticipated by Carmel (the Managing Director and major shareholder in the business)
to be included in the payroll system:
Master File
1 Employee Number
2 Employee Name
3 Employee address
4 Qualifications
5 Commencement date
6 Employee BSB and Bank Account details
7 Pay Rate $
8 Overtime Rate $
Monthly Transaction file
9 Payroll periods
10 Employee Number
11 Regular hours worked
12 Overtime hours worked
It is Carmel’s view that the system will be well planned and looked after. She has decided that
the system will be maintained by a 3
rd
party service provider and all information will be input
by the accounts clerk (an employee of CK). Before payroll payments are made to individual
employees, Carmel will review and authorise the payroll calculations provided by the system.
Required:
(a)Recommend 2 specific IT input application controls which Carmel should
implement to improve her internal control environment.
(b)For each application control above, suggest an appropriate test of control
which you could use as an auditor to gather evidence.
(c)Using the data fields above, recommend 1 exception report to assist the
auditor to gather audit evidence to address the assertion of ‘Occurrence’ of
payroll expenses
.
Question 4
Part A:
You are in the final stages of the audit of DELL Limited. During the review of the final copy of
DELL’s Annual Report, prior to signing the audit report, you identify the following information
in the Director’s Report:
‘The large increase in the profit for the period of the company is attributable to increased market
share based on our successful marketing strategy, expansion of operations and product range.
The increased profitability is expected to continue with the signing of a $5 million contract just
after year end on the 10 July for the purchase of a new warehouse in Brisbane.’
Information in the Financial Report, which you are satisfied with includes the following:
___________________________________
Profit before Tax
2021 2020
$2,900,000 $3,500,000
___________________________________
Required:
Discuss the audit issues and the likely impact on the audit opinion to be issued.
Part B:
You are the auditor for Grapevine Australia Ltd (Grapevine), a wine production and
distribution company, for the year ended 30 June 2021. Your auditor’s report was
signed on 24 August 2021. The financial report was approved on the same day by the
directors of Grapevine. The financial report was issued to shareholders on 10
September 2021.
Listed below are events that occurred or became known to you from 30 June 2021
onwards. Assume that each item is material.
DATE EVENT
(i)15 August 2021A massive dust storm, combined with a plague of
grasshoppers, ruined the entire wine grape vines that were
newly planted on 2 July 2021 The loss was only partly insured.
(ii)17 August 2021The board authorised the issue of two million ordinary shares
and the acquisition of a new subsidiary.
Required:
Describe (a) any obligations you have as the auditor to act with regard to this subsequent
event? And (b) Appropriate actions of the auditors.
Question 5
Temper Telecommunication Ltd is a listed public company that manufactures
communication equipment. Last year the company engaged itself in a contract
involving the engineering and infrastructures for a highly complex broadband network
in Adelaide. The company has a 30 June year-end, and the statutory accounts are due
to be signed one week after the board of directors meeting on 5 August 2019. During
the course of the audit, you become aware that the due to the complex negotiations
with the Australian Government on broadband networks, and the likely change in
government policies, the company was advised that the plan for the broadband
network engineering project may be suspended until further notice. Temper
Telecommunications had bought sophisticated equipment which was to be paid off
through the life of the project over 3 years. It also commenced the architectural
planning, employing two highly paid experts in broadband architecture. Temper
Telecommunications is now experiencing growing cash flow difficulties (the project was
meant to be able to save its business).
It has recently applied for a significant increase to a borrowing facility that is already
fully drawn. Management is adamant that the company will continue to be viable. If
necessary, it claims it can resort to cutbacks in its other future capital expenditure
program, seek additional off-balance-sheet financing and/or reschedule existing debt
arrangements.
Required
(a)Assess the appropriateness of the going concern basis in preparing the financial
statements of Temper Telecommunications
(b)Discuss the potential audit report options in relation to Temper Telecommunications Ltd.
