Question
Question 1 You are an audit manager in Thomasson & Co, a firm of Chartered Certified Accountants. You have recently been assigned to the audit
Question 1
You are an audit manager in Thomasson & Co, a firm of Chartered Certified Accountants. You have recently been assigned to the audit of Clean Co for the year ended 30 September 20X8. Clean Co is an unlisted company and has been an audit client of your firm for a number of years.
Clean Co is a national distributor of cleaning products. The company buys the cleaning products from wholesalers and employs a team of approximately 750 sales staff around the country who sell the companys products to both domestic households and small to medium-sized businesses. Around 75% of Clean Cos sales transactions are cash-based and each of the companys sales staff prepares a cash sales report on a monthly basis. According to Clean Cos chief executive, Simon Blackers, and in order to foster an entrepreneurial spirit amongst his staff, each staff member (including the senior management team) is encouraged to make cash sales and is paid on a commission basis to sell the companys products to friends and family. Mr Blackers leads the way with this scheme and recently sold cleaning products with a value of $33,000 to a business associate of his. He has transferred these funds directly into an off-shore bank account in the companys name on which he is the sole signatory.
Review of audit working papers Your review of the audit working papers and an initial meeting with Mr Blackers have identified the following potential issues:
Following your review of the audit engagement letter and the working papers of the taxation section of the audit file, you have established that Thomasson & Co performed the taxation computation for Clean Co and completed the tax returns for both the company and Mr Blackers personally. All of the taxation services have been invoiced to Clean Co as part of the total fee for the audit and professional services. Mr Blackers personal tax return includes a significant number of transactions involving the purchase and sale of properties in various international locations. The taxation working papers include a detailed review of a number of off-shore bank accounts in Mr Blackers name which identified the property transactions.
During your initial meeting with Mr Blackers, he informed you that Clean Co is planning to develop a new website in order to offer online sales to its customers. He has asked Thomasson & Co to provide assistance with the design and implementation of the website and online sales system.
As a result of your audit review visit at the clients premises, you have learned that the audit team was invited to and subsequently attended Clean Cos annual office party. The client provided each member of the audit team with a free voucher worth $30 which could be redeemed at the venue during the party. The audit senior, Paula Metcalfe, who has worked on the audit for the last three years has informed you that the audit team has always been encouraged to attend the party in order to develop good client relations.
Required: (a) (i) Discuss the policies and procedures which Thomasson & Co should have in place in relation to an antimoney laundering programme; and (4 marks) (ii) Evaluate whether there are any indicators of money laundering activities by either Clean Co or its staff. (6 marks) (b) Comment on the ethical and professional issues arising from your review of the audit working papers and recommend any actions which should now be taken by Thomasson & Co. (10 marks)
Question 2
It is 1 July 20X5. You are an audit manager in Welford & Co, a firm of Chartered Certified Accountants. Your role includes performing post-issuance audit quality reviews, and you have been asked to review the audit work performed on Rivers Co for the financial year ended 31 January 20X5. You have gathered the following information from your review of the audit file:
Audit team and fees Rivers Co is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Rivers Co has been an audit client of Welford & Co for eight years, and Bob Newbold has been the audit engagement partner during this time. Rivers Cos auditors report was signed by Bob Newbold and issued last week. The report contained an unmodified opinion.
Welford & Co requires its staff to record each hour they spend working on each client in the firms time management system. From reviewing the time records relating to the audit of Rivers Co, you are aware that Bob and the other audit team members recorded the following amount of time on the audit:
Bob Newbold audit engagement partner Pat Canley senior audit manager Anesa Kineton audit manager Six audit assistants | 2 hours 6 hours 35 hours 130 hours 173 hours |
Total time spent on audit |
|
It is apparent from your review that almost all of the detailed review of the audit working papers was completed by Anesa Kineton, who has evidenced her review by stating final review on each page of the audit file. She has recently been promoted to audit manager.
You are also aware that Bob Newbold booked a total of 40 hours to Rivers Co in respect of non-audit work performed. The only information you can find in the documentation is that the non-audit work related to a special investigation, and that Bob confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was $250,000 and the fee for the special investigation was $890,000.
Going concern From reviewing the audit working papers, you are aware that going concern was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the companys construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.
Most of the audit work on going concern was performed by Mary Loxley, an audit assistant who has just taken her last professional exam and is not yet qualified. The majority of the audit work performed on going concern focused on a review of five major contracts to determine their profitability. The management of Rivers Co identified the major contracts for review and provided Mary with forecasts indicating that the contracts would all make a small profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary completed the conclusion on going concern, stating that there is no significant uncertainty over going concern.
Required: Comment on the quality of the planning and performance of the audit of Rivers Co, discussing the quality control, ethical and other professional issues raised and recommending appropriate actions to be taken.(10 marks)
Question 3
MONET & Co.
You are a manager in Monet & Co, a firm of accountants which has 12 offices and 30 partners, 10 of whom are members of ACCA. As an expert in ethics and professional conduct, you have been asked to advise the partners on the following issues, which were raised at a recent meeting.
(a) An advertisement has been drafted as part of the firms drive to increase the number of clients. It is suggested that it should be placed in a number of quality national as well as local newspapers:
Have you had enough of your accountant charging you too much for poor quality services?
Does your business need a kick-start?
Look no further; Monet & Co provides the most comprehensive range of finance and accountancy services in the country as well as having the leading tax team in the country who are just waiting to save you money.
Still not sure? We guarantee to be cheaper than your existing service provider and for the month of January we are offering free business advice to all new audit clients.
Drop in and see us at your local office for a free consultation.
Monet & Co, Chartered Certified Accountants. (7 marks)
(b) The planning for the audit of Renoir Cos financial statements for the year ending 31 March 2016 will commence shortly. In preparation the audit partner telephoned Renoir Cos finance director, Jim Cassatt, to set up a planning meeting and to remind him that fees relating to a tax engagement from the previous year were still outstanding. Mr Cassatt raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this years audit
will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor. (7 marks)
(c) Your firm audits the publisher Homer Winslow Co. During its recent audit, the companys finance director commented on growing competition in the digital publishing sector. One rapidly expanding competitor, Pissarro Co, was specifically referred to. You are aware that your firm recently acquired another accountancy firm, Maar Associates, and that Pissarro Co is one of their clients. It is hoped that the audit of Pissarro Co will be transferred to your department to take advantage of your specialism in media and publishing. (6 marks)
Required:
Evaluate each of the issues described above, commenting on the ethical and professional issues raised and recommend any actions necessary in response to the issues identified.
Note: The split of the mark allocation is shown against each of the issues above. (20 marks)
Question 4
An audit senior left the following note for your attention:
I have been working on the audit of properties, including the Groups storage facility warehouses. Customers rent individual self-contained storage areas of a warehouse, for which they are given keys allowing access by the customer at any time. The Groups employees rarely enter the customers storage areas.
It seems the Groups policy for storage contains contracts which generate revenue of less than $10,000, is that very little documentation is required, and the nature of the items stored is not always known.
While visiting one of Groups warehouses, the door to one of the customers storage areas was open, so I looked in and saw what appeared to be potentially hazardous chemicals, stored in large metal drums marked with warning signs. I asked the warehouse manager about the items being stored, and he became very aggressive, refusing to allow me to ask other employees about the matter, and threatening me if I alerted management to the storage of these items. I did not mention the matter to anyone else at the client.
Required;
Discuss the implications of the audit seniors note for the completion of the audit, commenting on the auditors responsibilities in relation to laws and regulations, and on any ethical matters arising. 10 marks
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