Auditing Question:

You are the auditor of ABC Limited for the year ended 31 December 2016. There are $20,000,000 bank balances and time deposit of $500,000,000 recorded.

Bank balances The following are the bank reconciliations prepared by ABC:

A Bank $ B Bank $

Balance per bank statement : 24,000,000 (3,000,000)

Reconciling items: (i) An unpresented cheque payable (5,000,000)

to a supplier which was issued

in January 2016 (ii) Cheque deposit from a customer 4,000,000

rejected by the bank (note a) Balance per ledger 19,000,000 1,000,000

Note: Further information: (a) The rejected cheque was due to inadequate funds in the customers bank account.

Time deposit The financial controller of ABC provided you with a time deposit slip issued by UK Bank on 1 September 2012. Its respective terms are as follows:

Principal amount: HK$500,000,000 Term: Not specified, withdrawal of the time deposit is permitted at any time Interest rate: 3% per annum payable on a quarterly basis Required:

(a) For reconciling item (i), explain the possible causes of this incidence. Propose adjustment(s) to correct the misstatements that may exist in ABC's 2016 financial statements.

(b) For reconciling item (ii), propose adjustment(s) to correct the misstatements and advise the implications that may exist in ABCs 2016 financial statements.

(c) With respect to the time deposit, the financial controller of ABC considers that it may take too long for UK Bank to reply regarding the bank confirmation. He asks you to rely on the time deposit slip instead of sending a bank confirmation request to UK Bank. Advise and explain whether you would rely only on the time deposit slip as audit evidence to confirm its existence.