Advanced Auditing and Assurance Exam

ADVANCED AUDITING
AND ASSURANCE EXAM

Table of Contents
QUESTION 1........................................................................................................................................3
QUESTION 2........................................................................................................................................4
Question 3.............................................................................................................................................5
a) Comment on matter that should have been considered..............................................................5
b) Issues regarding modified financial records...............................................................................6
Question 4.............................................................................................................................................7
A 1) steps to be taken in planning the forensic investigation.............................................................7
A 2) Recommended procedure..........................................................................................................8
B) Ethical and other issues arises.......................................................................................................8
C) Recommend that matter................................................................................................................8
REFERENCES......................................................................................................................................9

QUESTION 1
Briefing notes
To: Audit engagement partner
From: Audit manager
Subject: Audit planning for Gringe Co.
Introduction
These briefing notes is being developed in regard to the audit planning for our client Gringe Co. for
the financial year ended 30 June 20X5.
The notes initiate with the evaluation of eth significant risk pertaining to eth material misstatement
which is needed to be involved in the planning of an audit. In order to do this, preliminary analytical
procedures is being carried out along with other approaches. The note discusses the issues and the
recommend actions to be undertaken by our firm.
(a) Evaluation of significant risks of material misstatement
Results from preliminary analytical procedures
Under this, various analytical procedures have been applied in order to indicate various potential risks
of material misstatement.
First is the current ratio of the company which is 1.25 in the year 30.06.20X5 in comparison to the
1.31 in 20X4 which is a decline. Based upon the information provided, the current liabilities of the
company were 27 in 20X5 and in 20X4 it was 19. It can eb seen that the current liabilities of eth
company increased. It can also be seen that the closing cash balance is relatively static which incurs a
risk that the other current assets mainly eth inventory and account receivables might be overstated.
However, the increase in current in 20X5 can be explained due to increased in eth inventory of the
finished goods.
The movement in the gearing ratio is very minor which is 14.7% in both the years. This is mainly
because of thereason that the company has taken loan in order to finance its research and development
(Mayes Jr, Landes and Hasty, 2018). There is an expectation that the gearing ratio will increase until
and unless, there has been a repayment being done by company for the finances.
Taking a look at the operating margin and return on capital utilized, the two proportions
have improved at a higher rate. This pattern is deserving of investigation during the review as the

offers and discounts offered to clients by the organization should act adversely on margins and
benefit, so the enhancements in ratios could demonstrate a possible exaggeration of operating profit.
Research and development
In this financial year, £24 of research and development costs have been capitalised under the heading
intangible asset. This represents 8.5% of total assets and would be needed to be considered material to
the financial statements. As per the IAS 38, the intangible assets should eb distinguished among eth
research costs which is then needed to be expensed and development costs is needed to be capitalized
only if certain criteria are being met. It also involves technical and commercial feasibility of the asset
has been established. This implies that the entity should plan and have the option to finish the
intangible assets and either use it or sell it and have the option to show how the resource will create
future monetary advantages for the business.There is other risk as well of material misstatement
which involves that eth cost of development costs requires to be capitalized but after meeting with eth
necessary criteria but the requirement of demonstrating that an asset has been created have not been
met.
QUESTION 2
(a)
Audit risks that should be considered when planningthe audit of Finch Co for the year ended 30 June
20X5 are:
 The first risk is that company makes payment of the purchases on a consignment basis
and is being paid the invoice price 6 months after the delivery or on eth sale of the
vehicle whichever is earlier. This results into affecting eth financial results of eth
company as later entry is being made in eth books of accounts which results into
affecting the accuracy of eth results. Therefore, the accounts payables in relation to
the purchases is also recorded after getting the delivery of the cars.
 The warranty given in relation to the new cars is also a point of concern as the
strategy used by eth company is very complex and is having eth potential to impact
eth accuracy of the financial figures. As it provides the new cars with 3 years of
warranty or 30000 miles which ever earlier and it accounts for 75% of the revenue. In
respect to eth second hand cars, it has a warranty of only 6 months but eth customers
can extend it further to 3 years for an additional fee which there are chances that this
might affect the profitability of the company. In addition to this, the promotional