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ACCT707 AUDITING AND ASSURANCE SERVICES

ACCT707 AUDITING AND ASSURANCE SERVICES
ASSIGNMENT Worth 30 marks Due 23 September 2015
Question 1 (15 marks)
Your firm is responsible for auditing the financial statements of Oz Manufacturing Limited for the year ended 30 June 2015. You are the senior attending the inventory count (stocktake) at Oz Manufacturing at the year end. The following are the proposed procedures for the inventory count:
1. Warehouse staff count specific areas of stock as determined by the warehouse supervisor; staff members, including the warehouse supervisor, were allocated their own area to count on their own.
2. Several blank sheets of paper were issued to each member of staff doing the counting.
3. Staff were instructed to write down the stock description and number counted.
4. Staff were told to write the stock quantities in pencil on the sheets to ensure errors can be corrected.
5. Any staff that completed a section early were allocated to another area to help out one of the other staff.
6. The supervisor collects all sheets at the end of the count to finalise the stock count.
Required:
1. What assertion(s) is/are the auditor trying to verify by the observation of the taking of the physical inventory?
2. Write a letter to the company Chief Financial Officer identifying weaknesses in the stocktake procedures above and suggest how they could be improved.
Question 2 (10 marks)
Oz Fabrication Limited (OFL) has been a client of KPN Partners for many years. You are the audit senior assigned to the OFL audit for the first time for the financial year end 30 June 2015. During March 2015, you are completing the audit planning for PPE, which is one of OFL’s most material accounts. You are aware that OFL has made a large investment in a new manufacturing process to place itself in a more competitive position. Your analytical procedures indicate an increase in acquisitions of PPE.
Required:
1. What is the key assertion at risk for the PPE additions? Why is it at risk? Explain
2. Identify the relevant substantive tests of details that would be appropriate to address the assertion at risk identified in 1. Above
3. How would your answers to the previous questions change if the PPE additions have been manufactured in-house by OFL’s engineers and toolmakers, rather than purchased?
Question 3 (5 marks)
Your firm is the auditor of Trojan Trading Limited. The audited financial statements for the year
ended 30 June 2014 show the company’s revenue was $5 million and the profit before tax was
$320,000. The part of the working papers that record audit work on the bank reconciliation at 30
June noted cash receipts of $14,000 recorded in the cash book before the year-end which were not
credited to the bank statement until a week after year-end. No further work was carried out as the
amount not considered material, and that conclusion was noted in the audit working papers. In
February 2015 the company investigated delays in banking cash receipts and discovered a fraud of
$36,000. The fraud was carried out by the cashier who was responsible for banking all receipts and
preparing the bank reconciliation,
Required
1. What further work should the auditor have done in this situation (if any)?
2. Should this have been reported? If so, to whom?

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