Professional Documents
Culture Documents
Step 7 AA
Step 7 AA
- Oak and Ash are clients of Able Cole, and Oak may not be able to pay Ash the sum it owes.
- Confidentialy threat
- Able Cole must not break confidentialy before Oak's bank has withdrawn the overdraft facility.
- There is a self interest threat to keep both clients
- Professional behaviour could be at risk if the firm chooses to break confidentiality.
-ISQM 1 and ISQM 2 are important here as the firm must provide a quality audit to both clients based on the informatio
- The firm should conduct further procedures into confirming liquidity of Oak.
1.2:
1.3:
- Quality management procedures uphold a quality engagement to the level expected by the client. It should not discre
profession.
- Quality management procedures ensures the relevant standards are being followed and are met.
- Quality management procedures ensure independence and objectivity in all parts of the engagement.
- Quality Management procedures constantly reviews ethical matters in relation to the engagment.
- Supports with planning and performing the engagement.
- Ensures the firm and its perssonnell fulfill their responsibilitys in accordance with professional standards and applicabl
and regularorty requirements.
- Engagement reports issued by the firm or partners are appropriate in the circumstances
- The public interest is served by consistent quality engagements.
- Supports the delivery of a quality engagement as the systems in place support with providing the firm with assurance.
1.4
ft facility.
nd are met.
he engagement.
engagment.
es
oviding the firm with assurance.
nt.
- 500,000 of income was inputted into the system in December 2018 in the final month of the year. This is not consistent w
- NOM062292: Q3 Sales were adjusted. It is over 30,000 and therefore material.
- SIN018441: Entry was created on a Saturday and the account relates to an overseas transaction.
-FWIGHT posted the most entries into the P&L and adjusted Q1,2 and 3 sales on the final date of the quarter. They are als
were debited to the suspense account.
- SRC006957: ABLOGGS entered a sales figure of 300,000 which is material. This was also entered during the Christmas pe
-SRC006974: Reversal of an uninvoiced sale in December 2017 which was then invoiced in September 2018
Heat Map:
-SRC006973 relates to an Overseas Recievable of 100,000 which is material. There is also no further information on this en
2.2:
Audit procedures:
Recalculate foreign exchange transactions to an independently sourced exchange rate at the time of transaction. This is be
Inspect contracts with receivables. Confirm payment is made within the specified times.
Conduct further procedures such as recalculation and reconciliation around post year end invoices and sales.
Match quarterly sales with invoices. Ensure they are recognised in the relevant period.
Verify the uninvoiced sale in 2018 is genuine and inspect a copy of the invoice. Confirm the amount payable with the cust
Inspect the invoice for the overseas receivable. Directly confirm the amount with the debtor.
Enquire why the sales adjustments have been debited to the suspense account.
Compare sales figures to the same periods in prior years (E.g december 2018 vs December 2017). This would allow the au
seasonality or whether the increase in sales in December 2018 is abonormal.
Match costs to sales as this would support revenue being recognised correctly.
Inspect contracts with customers and identify performance obligations to assess whether revenue has been correctly reco
reveue.
2.3:
(51010) There is a refund of 24,320 due for an invoice error relating to an October transaction. Again, there is a risk reven
(72000) Rent due for October was paid in February. This could suggest cash flow problems or additional penalties may be
(71080) - The external consultancy payment for an executive was paid post year end, when the work was completed in No
expenses.
2.4:
Threats to Objectivity:
- Elephant would prefer the audit report signed by 31 March, which is a tight deadline. This could lead to quality issues an
(71080) - The external consultancy payment for an executive was paid post year end, when the work was completed in No
expenses.
2.4:
Threats to Objectivity:
- Elephant would prefer the audit report signed by 31 March, which is a tight deadline. This could lead to quality issues an
complete the work.
-There is also an intimidation threat arising from management insisting the audit report to be completed by 31 March. In a
the audit going smoothly. This suggests there could be consequences for the audit firm if they do not comply with manage
- The client would like the audit firm to support with finding a replacement candidate. Here, there is an advocacy threat an
candidates.
Safeguards:
The audit firm should remind the client of the auditors responsibility to comply with ethical standards and complete the a
to deliver a quality audit in the specified time frame and this should be made clear. The audit firm can also refer to the lett
report will be signed. Alternatively, the audit firm can employ additional personnel who are qualified and competent to su
this will erode profits from the audit firm and can create a project difficult to manage.
The audit firm should consult with the ethics partner and seek their advice on how to navigate the intimidation threat. Th
engagement if they are unable to complete an audit to a high quality. Alternatively, the audit firm can seek legal advice or
In regards to the additional work, the advocacy threat and management threat are unmanagable. The audit firm should no
applicable which could reduce the threat to independence to an acceptable level.
the year. This is not consistent with prior month entries.
saction.
date of the quarter. They are also coming from the Nominal journal. The adjustments
entered during the Christmas period and is toward year end which is suspicious.
September 2018
r 2017). This would allow the auditor to assess whether the spike in work is due to
revenue has been correctly recognised. This will also support the balance of the deferred
d. This was also posted to Run Control (not sure what this means).
is could lead to quality issues and a higher detection risk if the audit firm has less time to
n the work was completed in November 2018. This suggests an understatement of
is could lead to quality issues and a higher detection risk if the audit firm has less time to
re, there is an advocacy threat and possible management threat if the firms reccommends
cal standards and complete the audit in line with quality standards. It may not be possible
udit firm can also refer to the letter of engagement which should detail when the auditors
re qualified and competent to support with completing the audit on time. However, the
igate the intimidation threat. The audit firm can also choose to resign from the
udit firm can seek legal advice or call the ICAEW helpline.
nagable. The audit firm should not agree to this line of work and there are no safeguards
Milford Ltd:
The costs incurred are 4.1m which is 2.7% of revenue. Therefore, this is a material balance. As a result, the auditor s
directors refuse to change the balance. This is because the auditor has concluded the financial statements are not fr
important to note that the misstatement in question is not material enough to be pervasive.
The auditor should include the reasoning in the "Basis for opinion" paragraph and draw attention to the issue.
Button Ltd:
The assurance firm should issue an unqualified opinion. This is because, whilst the balance is material in itself, the fi
work. The opinion should be unqualified so long as the audit firm obtains reasonable assurance there is an agreeme
Zep Ltd:
As the balance is material and the audit firm are unable to obtain direct confirmation, the auditors should seek a diff
the relevant balance.
If the auditor cannot use alternative procedures to obtain assurance, then the auditor should issue a disclaimer of o
disclaims an opinion due to an inability to obtain sufficient and appropriate audit evidence.
Here, the auditor should state they do not express an opinion on the financial statements.
In the Basis for Disclaimer paragraph, they should say they have not been able to obtain sufficient and appropriate a
Freystrop Ltd:
If the directors are still unwilling to amend the directors report, the auditor should isssue an unqualified audit opinio
obtained sufficient audit evidence that the financial statements are free from material misstatement.
Instead, the auditor has a responsibility to comment on the directors report/strategic report. The difference betwee
significant and material. Therfore, the auditor should communicate with those charged with governance and ask the
auditor should consider withdrawing from the engagement, or seek legal advice. In addition, the auditors should see
mistatement appropriately brought to the attention of the shareholders.
alance. As a result, the auditor should issue a modified opinion if the
he financial statements are not free from material misstatement. It is
ervasive.
raw attention to the issue.
balance is material in itself, the firm have a buyer willing to purchase the
e assurance there is an agreement to purchase the work.
The firm will produce a report for the use of management in regards to its findings on the assurance engagement.
The firm will review, analyse and reperform calculations based on the information that has been supplied by managem
The firm will test the forecast against the recognised standard (ISAE 3400)
The engagement letter will state the responsibilites of management. It is not the assurance firms responsiblity to audit
supplying the information on which the opinion is given on.
The firm may seek to include a liability cap, where the users (management) would only be able to seek a pre-determin
3.2:
Income:
Ensure growth of income from Commercial and Domestic lines are in line with historic growth.
Apply professional skeptiscim of the growth in income from restuarants and bars. As this is new, perhaps create a high
Consider any amounts receievable and when they fall due. Consider the likelihood of the firm recieving payment.
Compare management's estimate of the property sale and compare with comparable properties on the market or rece
of how much they believe they can sell the property for.
Review the discount rate used to discount future cash flows. Assess its reasonableness and enquire with management
Consider possible prior year losses which could be used to offset the firms tax liability.
Consider whether management have used historic performance to forecast their cash flows as this is essential when a
Expenditure:
All taxes, VAT and NIC's are paid on time and in accordance with the amount due.
Wages are appropriately paid on time.
The loan is repaid when the payment is due along with the correct interest payment.
Recieve confirmation/estimates of the cost to modify the new property
Consider the agreement with the workforce subcontractors and insert cash outflows accordingly. Consider whether th
During busier periods (such as summer) adjust wages to reflect the increase in demand.
Consider the value of inventory. There is a higher carrying amount of inventory which could result in it being obsolete
Reflect all payables when they fall due.
For sensitivity:
The firm should conduct a sensitivity analysis on the foreign exchange currency as the firm trades with India and are li
exchange rate fluctiations.
The firm should conduct a sensitivity analysis on the interest rates for the loan.
During busier periods (such as summer) adjust wages to reflect the increase in demand.
Consider the value of inventory. There is a higher carrying amount of inventory which could result in it being obsolete
Reflect all payables when they fall due.
For sensitivity:
The firm should conduct a sensitivity analysis on the foreign exchange currency as the firm trades with India and are li
exchange rate fluctiations.
The firm should conduct a sensitivity analysis on the interest rates for the loan.
the assurance engagement.
t has been supplied by management.
rance firms responsiblity to audit the figures supplies, and it is management who are responsible for
growth.
properties on the market or recent transactions that have closed. This will support management's estimate
s and enquire with management how it reflects the risk of the cash flows.
ccordingly. Consider whether this is a contractual obligation and when the contract ends.
d.
could result in it being obsolete if it is not sold.
firm trades with India and are likely to be paying or receiving money in a foriegn currency subject to
d.
could result in it being obsolete if it is not sold.
firm trades with India and are likely to be paying or receiving money in a foriegn currency subject to