Hi Tutors, need help with Auditing questions.

Total word limit is 1500 - 1700

Prescribed text book:

Gay, G. E. & Simnett, R. (2015). Auditing and assurance services in Australia (6th ed). Roseville: McGraw Hill.

Handbook: Chartered Accountants Australia and New Zealand. (2016 or 2017). Auditing, assurance and ethics handbook. Brisbane: John Wiley & Sons Australia.

Question 1 need to be answeredwith critical evaluation of the ethical issueusing the 7 steps of AAA model i.e.

1. Determine the facts

2. Define the ethical issues

3. Identify the major principles, rules and values

4. specify the alternatives

5. Compare values and alternatives - see if clear decision

6. Assess the consequences

7. Make your decision

Please use Auditing, Assurance and Ethics Handbook Australia and APES 110 section where required for referencing when coming to conclusions or opinions

Second question required the use of test of controls.

Attached documents has details of the question.

please do not hesitate to contact me if need further information.

Question 1 Jerry is an audit partner in a local office of a large regional accounting firm. One of Jerry's biggest clients is Thunderbolt Ltd. - a company which undertakes major property development projects. Thunderbolt is also a large employer in the local community. Until last year Thunderbolt had been very profitable but the economic downturn has started to have a detrimental impact. Jerry is preparing for the final audit meeting with the client. At this meeting there will be discussions about the main findings and any adjustments which are required to be made to the accounts. One major issue with the audit was lingering doubts over Thunderbolt's status as a going concern. Thunderbolt was coming close to violating its loan contracts which required it to maintain a current ratio of 1.7:1. This issue has caused Jerry many sleepless nights of late - Jerry likes the people who run Thunderbolt and is well aware of the negative impact that its closure would have on the local community. Jerry is also aware that Thunderbolt's violation of loan terms would most likely have a negative impact on his own immediate career prospects. Thunderbolt's year-end was 30 June but Jerry's firm carried out most of its work during February. At that time all of the projections looked fine, however recently Jerry noticed that one of Thunderbolt's major customers, Deciduous Ltd had been placed into administration. At year-end Deciduous owed Thunderbolt $1.8 million. If this amount were to be written off Thunderbolt would be breaching its loan contracts. While Jerry was aware that Deciduous was disputing the amount due (such tactics were common in the property development industry) he fully expected that the vast majority of the sum owed would be paid. This is now all in doubt. At the meeting with the client, Jerry asks whether any provision had been created in relation to the amount due from Deciduous or whether any updates to the projections originally audited in February had been made. Darryl, Thunderbolt's Chief Executive, advises Jerry that he does not believe this will be necessary. Darryl informs Jerry that the administrator of Deciduous has advised him that Deciduous will be able to meet all of its outstanding debts. Jerry advises Darryl that he hopes this is will be the case but he will need to obtain assurances from the administrator directly. Darryl asks why this is necessary as he is happy to give Jerry a letter to this effect. Jerry advises Darryl that he has to do his job. Darryl reacts to this angrily shouting: \"Jerry, you have been our auditor for years and at the first sign of trouble you appear willing to help the bank shut our doors, the effect of which will be a disaster for the local community and also for your firm. Many of your neighbours work for this company, what will they think? What will their children think? This will impact on your own children at school. All we are asking for is time - to let us trade out of this situation. As far as I am concerned, the accounts will not be altered. You can do as you wish - however remember what I have told you - local communities need businesses like ours. I will let them know who caused the closure of this business, if that's what it comes to!\" Required: Use the AAA model to recommend a course of action for Jerry (15 marks) Marking Criteria Identification and evaluation of the ethical influences on the audit process (LO2) (15 marks) - Provides a comprehensive synthesis and critical evaluation of the ethical issues in the scenario, using the AAA model. Question 4 You have been involved with the audit of River Pty Ltd. - a manufacturer of household cleaning chemicals. As part of your interim review you have completed a 'walk through' of the procedures involved with the purchases and payments cycle. The following is a summary of the procedures you have documented on your file: The warehouse manager is responsible for placing orders for chemical 'ingredients'. Because of the bulk quantity discounts, he will usually place an order for three months of ingredients when there is one month of ingredients left. He is able to determine how much the company uses in manufacture each month by reviewing the inventory records held at the warehouse. To order, the warehouse manager contacts any of the approved suppliers and places an order over the phone. No record is kept of the conversation, nor does the warehouse manager require any approval. To make sure he doesn't reorder in error he 'ticks' the inventory ledger and writes the date of order next to the product number. When goods are received the warehouse assistants check the delivery note against the ingredients coming in and then lets the deliverer pump the ingredients into the company's storage tank. At no point do they check the actual quantity received. A warehouse assistant then gives the delivery note to the warehouse manager. The warehouse manager will then post a journal entry to the inventory system by keying the entry into the terminal. When the journal is accepted, the computer will generate a journal number. (Note: the journal posted by the system is DR Raw materials inventory; CR Creditors). The warehouse manager writes the journal number onto the delivery note and sends it to the accounts payable clerk at head office. The accounts payable clerk files the note by supplier. The accounts payable clerk at head office receives all supplier invoices. On receipt of the invoice the clerk checks the details to the delivery note received from the warehouse. If there are no discrepancies she will prepare a cheque requisition for the mount of the invoice and forward the cheque requisition, with the invoice and delivery note attached, to the financial controller for authorisation. If the payment is over $20,000 the financial controller must forward the requisition to the managing director for authorisation. The financial controller and/or managing director signs the cheque requisition to indicate authorisation and forwards the documentation to the banking clerk who keys the payment into the general ledger (the journal posted by the system is DR Creditors; CR Bank). Once the journal is accepted by the system, the system generates a journal number which the banking clerk writes on the cheque requisition. She then files the cheque requisition together with supporting documentation by cheque requisition number. All cheques are printed and signed (counter stamped) by the computer. When they have been printed they are returned to the banking clerk who checks the details and sends them to the supplier. Required: a) Identify four strengths and two weaknesses in the purchases and payments system and justify your selections. (12 marks) b) For each strength identified in part a), indicate one test to be performed to test the controls (4 marks) c) For each weakness identified in part a), identify a test which can be performed to minimise this risk (4 marks) Marking Criteria Appraisal of the client's internal control environment and application to the audit risk model (LO3). Explanation for the selection of tests of control in the audit process. (LO4) (20 marks) - Well supported and coherent explanation for the choice of four (4) strong internal controls and tests of control. Well supported and coherent explanation for the choice of two (2) control weaknesses that most significantly threaten the client's business risk in relation to purchases and payments of inventory. Likely impact on risk and tests minimising risk thoroughly articulated