Site assets

$
Carrying amount on statement of financial position as at 31 May 20X8 3·6 million
Value in use 2·9 million
Fair value 3·9 million
Related costs of selling the assets:
– legal costs 126,000
– transaction taxes 174,000
– costs of removing the assets 85,000
– costs of reorganising the business following the asset disposals 96,000
On the basis of the results of these figures, the client has calculated the recoverable amount of the assets as
$3·6 million and concluded that the site has not suffered an impairment. No adjustments have therefore been
made to the financial statements in this regard. (5 marks)

Required:
Recommend and explain the matters which should be discussed with management in relation to each of the
proposed adjustments, including an assessment of their individual impact on the financial statements and on
the auditor’s opinion if management does not make the proposed adjustments.
Note: The split of the mark allocation is shown against each of the issues above.

8€
Oz
⑦
(b) Your client portfolio as an audit manager at Coram -& Co also includes Turner Co which is a listed financial
institution offering loans and credit facilities to both commercial and retail customers. You have received an email
from the audit supervisor who is currently supervising interim testing on systems and controls in relation to the
audit for the year ending 31 October 20X8. The email gives the following details for your consideration:

[
One of the audit team members, Janette Stott, has provisionally agreed to take out a loan with Turner Co to finance
→

the purchase of a domestic residence. The loan will be secured on the property and the client’s business manager
has promised Janette that he will ensure that she gets ‘the very best deal which the bank can offer.’
.

[
The payroll manager at Turner Co has asked the audit supervisor if it would be possible for Coram & Co to provide

€I
EE
a member of staff on secondment to work in the payroll department. The payroll manager has struggled to recruit
- -

a new supervisor for the organisation’s main payroll system and wants to assign a qualified member of the audit
firm’s staff for an initial period of six months.

Required:
Comment on the ethical and professional issues raised in respect of the audit of Turner Co and recommend
-

②
-

any actions to be taken by the audit firm.

←
(8 marks)

(25 marks)

9 [P.T.O.
 Co ) Cbs to sales
terms
just
Coram -
8 marks best is a normal
offer
.

Provisional Janette to take loan statement which he must have said to

agreement of everyone
.

audit client Turner Co will create If Coram Co will to

from give
an
employee
.
.

Self Interest threat Janette will not be Turner Co deptt then it will create
for Payroll
a
.
. .

to due to threat that threat to because made

able identify
issue a a
independence Payroll .

her loan that Coram Co will become

may get affected by employee
. .

However it be that Turner Co

res Later Coram Co will itself audit
can
agreed part of
.
.
.

is a institution which loan that Payroll during Fs audit .

financial gives
to
everyone
. If Janette has also takenloan However it can be
argued
that it is normal

at terms then threat audit to

normal no
significant for firms provide employees for
exist non audit work That particular employee of
. .

Provisional loan Janette needs Coram Co who will work in Turner Co.
agreement of payroll
.

to be reviewed that whether abnormal will not be audit team

any depth part of
terms exist which create concern : no threat exist
significant
a .

of
o

It needs to be considered that Turner Co

independence
.
.

Janette be to loan is a listed and

can asked
reject entity provision of
non

order to resolve Self interest audit services to listed entities is

agreement in prohibited .

threat .

It can be that Business

argued manager
statement to best terms show that
offer ,

Janette is a special due to

given favour
her
position of auditor . However it can be

argued that statement Business

manager
of
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Page 106 130
of 416
 Cheetah Co Cb) 8marks as Leapord Co also present
firm
.
-
. was
,

Request Cheetah Co to Leapord Co in loan

of negotiation
.
. .

for accompany
in loan
negotiation meeting Bank has asked an independent review

create threat auditor

report interim Fs As interim
for
will review
Advocacy of
.
.

In Co. to done Co :
loan
negotiation Leopard has is
being by Leopard .
o

if
Advocate Cheetah will attend loan then that
Co .
in
front of
bank , they negotiation
Co. 's interim be
which will
affect Leopard independence review report will not regarded

as an auditor .
as independent
.

to
request to
Cheetah Cheetah Co
Politely decline Co .

for
.

request complete interim

attend bank loan to resolve review creates a concern due
meeting quickly of
Advocacy issue .
care .

In order to complete review quickly

It needs to be discussed with Cheetah Co overlook issues

may
.
.

Cheetah Co that what are their Further Cheetah Co is undue

using influence
.
.

Co relation that time

Leopard
if
in not
expectations from review is completed on
.

to Bank loan If then next audit tender outcome

meeting expectation is

year
.

to entire loan 9 to present will be This intimidation will

negotiate affected
.

a biased position in order to obtain auditor 's independence during review

affect
.

loan then concern will be

higher Issue intimidation to next
of relating year
.

A commercial aspect also needs to audit needs to be discussed with Tower

be considered that to resolve auditor

accompanying
in as
they are
responsible
loan meeting is risk that issues .

a
negotiation ,

Cheetah Co. to loan

if fails repay
then bank claim
against
our
may .
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Page 149 173
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 Cad Wire Co 6€ Audit
fees
wire co should increase as Co Planned audit procedures were
of
. .
.

✓
Is Audit should audit not due to low
fees increase
operations operations are
increasing i€ scope of
work
performed fees
.
.
-

are
getting bigger is Audit should be to Audit Procedures cannot be reduced
increasing fees according
.

✓ 3 Discuss with TCWG scheme

Scope work 9 risk client as
per fees It should be ensured
of
work
of of
-
.
.

increase in audit
fees Bunk Co should discuss with TCWG about that G appropriate evidences
sufficient
-
.

Fees to
✓ 3,
Politely decline low
scope audit work 9 hours
required during are obtained
form opinion
of
-
.

4, cannot be due to to Co Detailed

Quality sacrificed audit due
expansion of
Wire .

low
fees discussion on additional scope of
audit
may
5 Intimidation threat undue them For Fees
✓
influence convince increase
-
. .

✓ 6, to Politely decline Co
Materiality level was increased due wire .
audit
if they do not

low audit
fees for fees despite of
increase in
agree
7, due to audit
✓ Not
performing procedures increase in scope of
.

low to audit
Denial
fees by
increase Co
fees wire .

B reduce sample size due to

fees despite of
increase in audit work
,
creates an

9, samples risk intimidation threat Client is undue

Judgemental are
high using
.

19 Part the locations were tested

influence to make the auditor
agreed
on
unfair
of
.

fees
.

Auditor increased Materiality level due to low

fees .
This shows lack
of competence as

level Should be
according to
materiality risk

assessment client rather than audit

of , fees .
Cbd Bunk A Russell Bell Audit Partner at Effectiveness firm Ethics needs
Uses
off shoring arrangement Joining of as
of policy
-
.

audit work It allowed to it Bunk Familarity to be reviewed it

for threat
is Co creates audit that how
use
for
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audit Bank Co As finance director possible that the had

for he
work
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judgemental
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work . was
of Wire co . o : one
of partner

policy
to use
offshoring arrangement for due to Familarity of their
systems
he
may
not shares
of
client
entity at
year
end .

low { work is
acceptable have audit skepticism However this Cross audit to audit
risk
nonjudgmental
is services
concern
selling of non
. -
.

low of audit interest threat

Using offshoring arrange
nls in audit work as he is not
part team .
clients will create self
for
Standards RussellBell Lester Freeman audit Auditor will biased 9
is not prohibited by of Auditing
. is
advising ,
on
firm .

get
It be used to audit Business developments of This will client to audit work
can
bring efficiency wire co will
favour get
in non .

work However it should be low risk areas

independent skepticism Lester Freeman as Inclusion Cross
selling
in audit partner
affect of of
.
.

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judgement on Russell 's comments
appraisal will create Self interest threat
a
off may
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-

lack Competence local laws Second Partner should be done He hold

employee of of high intensity
review
may of .

influence on

G to this Co audit Audit Partner 's do lack due to

environment .
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opinion 9
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able to audit work with due care
exist
perform skepticism Cross
.

selling
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.

Bunk Co should that threat However it to that

. ensure
they use A self Interest is created as one
of
is note cross
selling

strong monitoring 9 control over

off shored the audit Partner
of
Bunk Co . had shares
by other
employees of firm is acceptable ,

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be in
far
work as
employees as
employees
.
. .

dione standard it can be that Russell Bell not audit Cross

argued
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is as
per quality of firm
.

influence
on
opinion .

selling can

Board minutes Wire Co

part of audit team also be included in their
of were
given appraisal
. .
.

to shored This shows lack It needs to be considered that Russell

off employees .

board Bell audit S

of competence of manager who consider is
partner of
Bunk Co .
even
if
minutes as low risk document As per he is not part of audit team he still
may
.

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policy only risk work can on work
.
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Caz Tetbury co . deals in Financial services sector Previous auditor comment that
Tetbury
co .
II Stratford Co .

request to
accompany

Bank loan

Controlshigh
which carries inherent risk are weak shows audit risk them in will
of Money negotiation
an .

As client Chester controls audit risk threat audit

part of for
acceptance Co weak will increase create
Laundering Advocacy
.
.
.

Should this risk in Co G in order to balance it auditor has to If will loan then
Tetbury we
negotiate
review .
our
,

Further firm
procedures to reduce to
Chester Co detection Co
.

should consider that whether

perform greater
has
promote Stratford
.

of Bank It not
they have competence to conduct
Tetbury
Co .
risk .
in
front .
is

audit It deals financial services sector which Auditor have permitted For auditor
undertaking from
-
in can an
.

bank
require specialist skills G technical knowledge .

Tetbury Co .

management
that
they will
improve Negotiating
loan
for Stratford
Previous auditor Co creates their audit 6- also commercial
controls
from
is
resignation of Tetbury activity dangerous
.

during
.

their clearance financial Services to

concern
integrity Professional Ongoing investigation of authority perspective They not be able
may
on . .

need to creates due to financial G

obtained
from previous
auditor to also concern on
integrity of Tetbury repay difficulty
about 6 Our Should not with client as result bank hold claim
gain knowledge
a
firm
reason
of resignation may
a
engage
.
.

Dispute treatment with lacks it

previous
firm for
who increases risk
on
accounting integrity
as .

against
our
giving wrong
auditor by Tetbury Co need to Business advise Non audit
management work
reference
-
.
.

Self Review threat

be
further investigated before client acceptance basis
of
Fs working
Politely decline
Stratford Co
for
- -
.
.

It be possible that Co like Ge assumption Bank loan in order to

may Tetbury
.

Management negotiation
treatment Advocacy threat Promoting client threat then
Advocacy
were resolve as
-
-

doing wrong
.

IF holds
opinion that Tetbury Responsibility not be
firm
Co advise will
firm
our
our By accepting advocating
-

giving
-
.

had done misstatement in earned Of work client

Manag
commission . .
.

then this should be a

pre condition
of Threat Finance Director to put
of
-

acceptance that should correct that audit to tender creates intimidation

they ,

misstatement threat he is undue

using
.
as

to the firm
influence make
agree
 On his demand bank loan IF Auditor will
provide actuarial valuation then self
unfair of negotiation .

Such intimidation auditor 's Review threat will be created Actuarial valuation will
will
ability
-

affect
to exercise Pension will become Part
independent skeptics m .

affect fund liability which

Intimidation finance FS 9 will be audited itself

by firm
used Director our
of by during
should be discussed with Tower audit
they
.

as
,

Are
responsible to resolve auditor issues However it needs to be considered that this
engagement
.

Finance Director should be to is low value It assets

refrained of
.

only represents
03%
of
use such intimidation :
risk
is low separate partner can be an
Using
.
o .

Outstanding dues interim audit also

appropriate to reduce threat
of safeguard
.

create intimidation threat auditor It be that actuarial valuation

for can
argued
involves
.

Independent skeptics not be used auditor

judgements Providing non audit service which
may
.

client dues issues self Review

as
may delay if involve
judgements may create a
higher
threat auditor take biased 9
are
identified
as
may judgements
.

Actuarial valuation Pension then lack skepticism audit

of fund of during
.

031
$105,000 assets : listed
represents of Banbury
Co is a
entity : audit
o
.
o non

immaterial to FS cannot
individually .
services be provided them ,
which become

It needs to be considered that whether

part FS Auditor should politely decline to them
of
.
.

to
our
firm has
sufficient competence
valuation Chester Co. has
perform actuarial
.

an audit partner with skill

sufficient ,

but he Actuarial
may face problem
as

valuations technical
may require use
of
tools which
firm lack
may
.