HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

ASSIGNMENT

AUDIT of FINANCIAL STATEMENT

HANOI 10 - 2022

Group requirement:

Students will form a group of 4 to 6 members to work on the assignment.

Please clearly indicate each members contribution at the end of the report (ex: Student A: Part 1.2, part 3.3 and part 4.1).

Format requirement:

The report should be in font Calibri size 12, set number of the pages and use multiple line spacing at 1.5. Margins must be: left: 1.25 cm; right: 1 cm; top: 1 cm and bottom: 1 cm.

The report cover must include the information of student name, student ID, lecturer and tutor name, subject and academic year.

The word limit is 2500 words (+/-10%), excluding the tables, graphs, diagrams, appendixes and references. You might be penalized for exceeding the total word limit.

If you use ideas, quotes or data from outside sources of information such as books, journals or others, you must reference your sources, using the Harvard style. Make sure that you understand and follow the guidelines to avoid plagiarism. Failure to comply with this requirement will result in a failed assignment. Your report will be checked using Turnitin.

Submission time:

Students are required to submit the assignment file via TEAMS in both word and pdf version, no later than 23.00PM on 23 November 2022.

AUDIT ENGAGEMENT 1:

A power plant run by HIGH VOLTAGE generates electricity seven days a week, twenty-four hours a day. The business's fiscal year ends on December 31, 2021. You work as an audit manager for HIGH VOLTAGE's auditor, CLEVERY FIRM. You are examining the papers outlining HIGH VOLTAGE's payroll system after the interim audit is over.

Systems notes payroll

Over 250 people are employed by HIGH VOLTAGE, with over 70% of them working in the power station. There are three shifts every day, and each shift lasts for eight hours. Weekly cash payments are made to the production staff. The remaining 30% of workers are paid monthly by bank transfer and perform non-production duties at the corporate headquarters.

The company's human resources (HR) division is in charge of onboarding all new employees. Pre- printed forms are completed by HR for all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. The employee number is included on this form because payroll cannot register new hires without it. HIGH VOLTAGE implemented a discretionary bonus for production staff that is paid every three months to reward punctual attendance for all shifts. The payroll department is informed of the amounts to be paid by the production supervisors. This quarterly bonus is entered into the system by a clerk and each entry is checked by a senior clerk for input errors prior to processing. The senior clerk signs the bonus listing as evidence of undertaking this review.

Employees in the production department receive clock cards, which they must swipe at the start and completion of each shift. Security personnel are on duty around-the-clock to watch over this operation. Each card identifies the employee number and connects to a report on the hours worked generated by the payroll system, which computes the gross and net pay as well as any applicable deductions automatically. These figures are not checked.

In addition to tax deductions, some employees' income is deducted for other reasons, like paying back government student loans. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. At HIGH VOLTAGE student loan deduction forms are completed by the relevant employee and payments are made directly to the government until the employee informs HR that the loan has been fully repaid.

The payroll director creates and examines exception reports regarding changes to the payroll standing data on a quarterly basis. Employees do not work overtime. Every year, employees are

allowed to take 28 days off. Forms for vacation requests must be filled out and approved by the appropriate line managers, although this does not always happen.

On a monthly basis, for employees paid by bank transfer, the senior payroll manager reviews the list of bank payments and agrees this to the payroll records prior to authorising the payment. If any errors are noted, the payroll senior manager amends the records.

For production employees paid in cash, the necessary amount of cash is delivered weekly from the bank by a security company. Two members of the payroll department produce the pay packets, one is responsible for preparing them and the other checks the finished pay packets. Both members of staff are required to sign the weekly payroll listing on completion of this task. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees shift, as they know each member of their production team.

Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed.

Your audit team is required to:

a) Identify at least 5 key controls that HIGH VOLTAGE currently applied and the audit team might rely on,

b) For each of the control, design a Test of control to evaluate its effectiveness,

c) Identify at least 5 control deficiencies and propose the recommendation (suggested

control) for each of the deficiency.

AUDIT ENGAGEMENT 2:

As a senior auditor with CLEVERY FIRM, you are planning the audit of NEW WAVE CO LTD for the fiscal year that ends on March 31, 2021. The business makes portable music players, and your audit manager and the finance director have already planned a meeting. The expected $68.6 million in revenue and $4.2 million in profit before taxes. Audit manager has given you the meeting notes shown below:

Key notes

The lower of cost and net realisable value is used to value inventory. The price of raw materials purchased plus conversion costs, such as labor, production, and general overheads, are combined to form the cost. Three different warehouses are used to store inventory. On April 2, 3, and 4, the business plans to complete thorough inventory counts at the warehouses. Any modifications that are required to reflect post-year-end inventory movements will be made. The counts will be attended by the internal audit team.

In order to obtain a competitive edge in their sector, NEW WAVE CO LTD spent $1.1 million on a patent during the year that grants the business the exclusive right for three years to customize its portable music players. The $1 million has been deducted from the current year's profit or loss statement. NEW WAVE CO LTD issued shares at a premium in order to obtain $1.2m to pay for this acquisition.

In November 2020, it was discovered that four employees in the sales ledger department had conspired to commit a sizable teeming and lading scam. To make up for the money they had taken from wholesale customer receipts, they offset later customer receipts against the earlier receivables. All of these employees were fired after being reported to the police. Due to the open positions in the sales ledger department, NEW WAVE CO LTD chose to outsource the processing of its sales ledgers to an outside service company. This service provider manages every aspect of the sales ledger cycle, such as sales invoicing and tracking down outstanding receivables balances, and produces monthly reports to NEW WAVE CO LTD that include specifics on sales and receivable amounts. NEW WAVE CO LTD ran its own sales ledger until 31 January 2021, at which point the records were transferred to the service organisation.

The financial accountant for NEW WAVE CO LTD was fired in December 2020. He has nine years of service with the corporation, and he has vowed to suit for wrongful termination. The duties of the financial accountant have been suitably delegated to other employees of the finance department as a result of this dismissal and up until his replacement starts working in April. However, neither buy ledger control account reconciliations nor supplier statement reconciliations have been carried out for this time period.

In January 2020, a receivable balance of $0.9m was written off by NEW WAVE CO LTD as it was deemed irrecoverable as the customer had declared itself bankrupt. In February 2021, the liquidators handling the bankruptcy of the company publicly announced that it was likely that most of its creditors would receive a pay-out of 40% of the balance owed. As a result, NEW WAVE CO LTD has included a current asset of $360,000 within the statement of financial position and other income in the statement of profit or loss.

Your audit team is required to:

a) Based on results of analytical procedure and provided information, identify at least 8 audit risks.

b) For each identified risk, suggest the possible impacts on audit plan.

(Example: how the risks impact Sampling, what are the possible further actions of auditor, or any modification for TOCs, STOTs and STDB)

AUDIT ENGAGEMENT 2:

As a senior auditor with CLEVERY FIRM, you are planning the audit of NEW WAVE CO LTD for the fiscal year that ends on March 31, 2021. The business makes portable music players, and your audit manager and the finance director have already planned a meeting. The expected $68.6 million in revenue and $4.2 million in profit before taxes. Audit manager has given you the meeting notes shown below:

Key notes

The lower of cost and net realisable value is used to value inventory. The price of raw materials purchased plus conversion costs, such as labor, production, and general overheads, are combined to form the cost. Three different warehouses are used to store inventory. On April 2, 3, and 4, the business plans to complete thorough inventory counts at the warehouses. Any modifications that are required to reflect post-year-end inventory movements will be made. The counts will be attended by the internal audit team.

In order to obtain a competitive edge in their sector, NEW WAVE CO LTD spent $1.1 million on a patent during the year that grants the business the exclusive right for three years to customize its portable music players. The $1 million has been deducted from the current year's profit or loss statement. NEW WAVE CO LTD issued shares at a premium in order to obtain $1.2m to pay for this acquisition.

In November 2020, it was discovered that four employees in the sales ledger department had conspired to commit a sizable teeming and lading scam. To make up for the money they had taken from wholesale customer receipts, they offset later customer receipts against the earlier receivables. All of these employees were fired after being reported to the police. Due to the open positions in the sales ledger department, NEW WAVE CO LTD chose to outsource the processing of its sales ledgers to an outside service company. This service provider manages every aspect of the sales ledger cycle, such as sales invoicing and tracking down outstanding receivables balances, and produces monthly reports to NEW WAVE CO LTD that include specifics on sales and receivable amounts. NEW WAVE CO LTD ran its own sales ledger until 31 January 2021, at which point the records were transferred to the service organisation.

The financial accountant for NEW WAVE CO LTD was fired in December 2020. He has nine years of service with the corporation, and he has vowed to suit for wrongful termination. The duties of the financial accountant have been suitably delegated to other employees of the finance department as a result of this dismissal and up until his replacement starts working in April. However, neither buy ledger control account reconciliations nor supplier statement reconciliations have been carried out for this time period.

In January 2020, a receivable balance of $0.9m was written off by NEW WAVE CO LTD as it was deemed irrecoverable as the customer had declared itself bankrupt. In February 2021, the liquidators handling the bankruptcy of the company publicly announced that it was likely that most of its creditors would receive a pay-out of 40% of the balance owed. As a result, NEW WAVE CO LTD has included a current asset of $360,000 within the statement of financial position and other income in the statement of profit or loss.

Your audit team is required to:

a) Based on results of analytical procedure and provided information, identify at least 8 audit risks.

b) For each identified risk, suggest the possible impacts on audit plan.

(Example: how the risks impact Sampling, what are the possible further actions of auditor, or any modification for TOCs, STOTs and STDB)

The End!