Q1 a)

The following is the description of cash disbursements system of Two Symbols Limited: Upon receipt of the documents from accounts payable department, the cash disbursements clerk files the documents until their payment due date. On the due date, the clerk prepares a cheque for the invoiced amount, which is sent to the treasurer who signs it and mails back to the supplier. The cash disbursement clerk then updates the cheque register, accounts payable ledger, and accounts payable control account from the clerk's terminal. Finally, the clerk files the invoice and copy of purchase order, receiving report, cheque in the department. Required: Describe the internal control weakness in Two Symbols' cash disbursements system and discuss the risk associated with the weakness. (10 marks,

b)

How is a credit check in the advanced technology system fundamentally different from a credit check in the basic technology system? (10 marks)

c)

You are the audit manager of Overseas Explorer Ltd (OEL), which acquired the small proprietary company Local Pty Ltd (Local) on 30 June 2018. The price of the acquisition was agreed at $5 million, on the condition that OEL is satisfied with the financial records of Local. As Local is a small proprietary company, it has not prepared statutory financial reports or undergone an audit since its incorporation in 2016. However, Local has agreed to allow your firm, which is the auditor of OEL, to access its books and records. The CEO of OEL, Wendy Champion, has requested that your firm provide assurance on the following three items: The management accounts for the year ended 30 June 2017 All transactions occurring from the date negotiations commenced until the settlement date, to ensure that all transactions were within the normal course of operations The financial report prepared at the acquisition date of 30 June 2018 In order to clarify your responsibilities, you requested that OEL indicate the level of assurance that they require for each item. Wendy replied that the financial report as at acquisition date is very important, as are the transactions since negotiations commenced, but that she is willing to have less work done on the previous year's management accounts. Required: Indicate the type of engagement that will most likely be undertaken for each of the three tasks and the level of assurance to be provided. Explain your selections. (10 marks)

d)

You are an audit manager at Hall & Associates, who have been approached to conduct the audit of Computer Games Ltd (CGL), a manufacturer of interactive computer games, for the year ended 30 June 2013. Hall & Associates has not previously audited CGL's financial report, although it has undertaken other types of engagements for CGL. Last year CGL hired Hall & Associates to assist in the redesign of CGL's accounting software to ensure that internal controls over internet sales were adequate to ensure the confidentiality of customer data and accuracy of recording. The new software was implemented at the beginning of the current year and appears to be working satisfactorily. As part of this year's audit, you expect to review the internal controls at CGL, including the controls within the IT systems. As part of CGL's financing arrangements with its bank, Easymoney Ltd, it has a loan covenant that stipulates that the quick asset ratio cannot be less than 1:1 or Easymoney Ltd has the right to withdraw all funding. The board has advised you that CGL's quick asset ratio is currently at 0.9:1 due to industrial action holding up the sale of goods imported from overseas. The board has asked you to ignore this temporary breach of the loan covenant, explaining that CGL is a stable and financially sound company, and that the ratio will return to a positive level on resolution of the industrial dispute. The board has indicated that unnecessarily disclosing this within the audit report would force it to reconsider its plans to use your audit firm for other engagements. As a result of CGL's current cash flow difficulties, the board has requested that Hall & Associate's audit fee for 2013 be paid in CGL shares. The board has indicated that the market value of the shares will equate to the value of the audit fee charged by Hall & Associates. The management of CGL is currently reviewing the structure of its audit committee to ensure that it complies with the requirements of the ASX Corporate Governance Principles and Recommendations. However, the board is confused by the reference in the ASX Corporate Governance Principles and Recommendations to both independent directors and non-executive directors, as they thought that they were the same thing. As a result, they have sought your advice concerning the structure of their audit committee. Required: a) Identify and explain three separate key threats to Hall & Associates' independence that may arise under APES 110. (3 marks) b) For each independence threat identified in a) above, describe the course of action Hall & Associates needs to take to ensure compliance with APES 110. (7 marks)