HA3032 Auditing Final Assessment T2 2021

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This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit. The questions cover topics such as materiality, audit risk model, independence, audit procedures, subsequent events, and audit opinion. The subject is HA3032 Auditing and the course code is not mentioned. The course name is Auditing and the college/university is not mentioned.

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Student Number: (enter on the line below)
Student Name: (enter on the line below)
HA3032
AUDITING
FINAL ASSESSMENT
TRIMESTER T2, 2021
Assessment Weight: 50 total marks
Instructions:
All questions must be answered by using the answer boxes provided in this paper.
Completed answers must be submitted to Blackboard by the published due date
and time.
Submission instructions are at the end of this paper.
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of
knowledge of the key topics covered in this unit
HA3032 – Auditing - Final Assessment T2 2021

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Question 1 – Materiality (7 marks)
As stated in ASA 320;
“The auditor’s determination of materiality is a matter of professional judgement, and is affected
by the auditor’s perception of the financial information needs of users of the financial report.”
(AUASB, 2015)
With reference to the statement above from ASA 320, define materiality and discuss how the
“needs of users” will affect how materiality is determined.
ANSWER: ** Answer box will enlarge as you type
Materiality in audit is being defined as the convention which relates with accounting and
auditing signifying its importance and inclusion of all material information within the working.
The reason underlying this fact is that with help of inclusion of material information all this will
present the actual working position of the company. The need of users affects the materiality
level which is being defined by the company. The reason pertaining to the fact is that there are
many different types of the users of financial statement and in case all the material information
will be provided then this will assist users in taking proper decision. For instance, investor is a
user of accounting information and when auditor states that all the information provided is
correct and material then this will motivate investor to invest within the company.
Question 2 - Audit Risk Model (7 marks)
What is the purpose of tests of controls? With reference to the three (3) main risk components
of the Audit Risk Model, explain the circumstances where it is NOT appropriate for the Auditor
to test the controls of the client entity.
ANSWER:
The purpose of test of control in audit is to determine the fact that whether the internal control
of the company is enough to detect or to prevent the various types of risk relating to material
misstatement. On the basis of audit risk model, there are three risk that is inherent, detection
and control risk. Thus, out of these, the circumstance wherein it is not appropriate for the
auditor for test control of client is control risk. The reason pertaining to the fact is that in case
the control is not effective then it can result in high risk. Thus, here the test of control can be
skipped and it reveals ineffectviness of control system.
Question 3 – Independence (7 marks)
HA3032 – Auditing - Final Assessment T2 2021
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A senior partner in a large incorporated accounting firm has 400 shares in a large client’s
company. Whilst this ownership stake is considered an insignificant part of the partner’s total
share portfolio, the firm has strict requirements about equity investments in clients based on
s307C of the Corporations Act and the APES 110 Code of Ethics for Professional Accountants.
Required:
a) Has the partner violated the independence requirements of the firm? Discuss (3 marks)
b) Explain whether the ownership is likely to affect the partner’s independence in fact.
(4 marks)
ANSWER:
A
In the present situation, the partner has violated that independence requirement as the person
has committed to have an insignificant part in the partner’s total of share portfolio. This is not
good for the company, as the partner is having a stake but it is insignificant and this is not the
independence requirement.
B
Yes, the ownership of the partner’s will definitely affect the independence of the partner. The
reason pertaining to the fact that, the partner has violated the requirement of independence
requirement and as a result of this, there independence will be affected.
Question 4 - Audit Procedures (7 marks)
Your firm Temasek, Smith & Partridge are currently auditing the financial accounts of Riddell Ltd
for the year ending 30 June 2021. You are the Audit Manager on this engagement and one of
your new graduates has performed the following audit procedures in relation to the sales and
collection process of Riddell Ltd, as follows:
1. Examined a sample of shipping documents to determine whether each document has a
sales invoice number included on it.
2. Added the columns on the aged trial balance and compared it to the total noted on the
general ledger.
3. Observed whether the financial accountant makes an independent comparison of the
total in the general ledger with the trial balance of accounts receivable.
HA3032 – Auditing - Final Assessment T2 2021
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4. Examined a sample of customer orders to see whether each order has a credit
authorisation.
5. Compared the date on a sample of shipping documents a few days before and after the
balance sheet date with related sales journal transactions.
6. Computed the ratio of the provision for doubtful debts divided by accounts receivable
and compared it with previous years.
7. Examine a sample of non-cash credit entries in the accounts receivable master file to
determine whether the internal auditor has initialled each one.
Required:
For each audit procedure stated above from 1) – 7), identify the applicable type of audit
evidence, type of test and provide an explanation of the purpose of the audit procedure.
Please use the following table to complete your responses:
ANSWER:
a.
TYPE OF EVIDENCE
b.
TYPE OF TEST
c.
EXPLANATION
Documentation Inquiry In the present case, the
evidence used will be
documentation as it will
assist auditor in examining
the shipping document and
checking the invoice
number. Also, the use of
inquiry will be assistive to
the compay in analysing the
fact that whether the invoice
number used is correct or
not.
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a.
TYPE OF EVIDENCE
b.
TYPE OF TEST
c.
EXPLANATION
Observation Observation In the present case of adding
the column on trial balance
and comparing it to the total
of general ledger is
observation for both that is
type of evidence and test.
The observation is being
used as by observing the
data in ledger, auditor
undertake the use of
observation and wrote all
the balance figure in order
to ensure proper cross
checking of data
Observation Observation In this transaction as well, the
auditor has planned the use of
observation only. The reason
pertaining to the fact is that
observation assist the
company in comparing the
independent comparison of
both ledger and trial balance.
HA3032 – Auditing - Final Assessment T2 2021
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a.
TYPE OF EVIDENCE
b.
TYPE OF TEST
c.
EXPLANATION
Analytical procedure Inspection of evience The reasosn pertaining to the
use of analytical procedure
will assist in examining sample
consumer to analyse whether
every order is having credit
authorisation or not. Along
with this, the use of inspection
of evidence was used for
analysing the credit
authorisation.
Observation Observation The rationale for the selection
of observation as both
evidence and test is that it will
assist auditor in properly
examinig and comparing the
smaple of shipping scouments
after completion of balance
sheet and to compare
whether it is correct or not.
HA3032 – Auditing - Final Assessment T2 2021
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a.
TYPE OF EVIDENCE
b.
TYPE OF TEST
c.
EXPLANATION
Analytical procedure Examination or inspecton
of evidence
This is another technique of
testing and evidence which is
used. The reason for using
analytical procedure is that
ratio of provision is created by
the procedure of doubtful
debt and is being divided by
account receivable. Along with
this test used is examination,
as after examining only the
amount of bad debt will be
decided.
Documentation CAAT that is Computer
Assisted Audit Technique
The rationale for the selection
of this evidence and test is
that with help of proper
document the non- cash credit
entires will be recorded and
with help of CAAT all the file
will be identified that whether
internal auditor has initialled
each one or not.
Question 5 - Subsequent Events (11 marks)
ASA560 includes the following statement:
“If, after the financial report has been issued, a (material) fact becomes known to the auditor
that, had it been known to the auditor at the date of the auditor’s report, may have caused the
auditor to amend the auditor’s report,…” (AUASB, 2015)
Required:
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a) Based on the statement provided above from ASA560, explain the actions required of
the auditor in this situation, that is, where a material fact arises after the financial report
was issued. (4 marks)
b) What are the potential risks to the auditor when this problem arises? Discuss. (7 marks)
ANSWER:
A
Based on the statement from ASA560 the action which auditor can undertake in the present
situation is that the auditor need to include that infromaiton within the report again and then
need to issue it. This is necessary because in case the information is material then it need to be
included in the financial reports.
B
The potential risk to the auditor in case of this problem is that there can be risk of
miscommunication. The reason pertaining to the fact is that when the information is outlined
after issue of financial statement then this will be impacting the financial position of company.
Along with this another risk is that when the information is not shared the other people might
think that they have unintentionally not provided the information. Hence, this can reduce the
goodwill of the company to a great extent.
Question 6 - Audit Opinion (11 marks)
Required:
The following are four (4) independent situations. For each case, state the type of audit opinion
which should be expressed and provide an explanation for your choice of audit opinion in each
case shown below a) – d), as follows:
a. Whilst auditing the Long-Term Investments account of Brownllow Medal Ltd., the auditor
has been unable to obtain the audited financial statements for a material investment of
an entity located in an overseas jurisdiction. The auditor concludes that sufficient and
appropriate evidential matter regarding this investment cannot be obtained in the
required time. Additionally, as the Audit Manager in charge of the audit-engagement,
you have to weigh up the requirements of the audit-engagement with the additional cost
of spending extra time at the client’s premises. (2 marks)
HA3032 – Auditing - Final Assessment T2 2021
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b. Due to recurring operating losses and ongoing working capital deficiencies, the auditor
has some serious doubts about BMP Ltd.’s ability to continue as a going concern for a
reasonable period of time. However, the financial statement disclosures concerning
these matters, which you have now reviewed and evaluated, are adequate, and the BMP
Ltd. senior management team has been co-operative and helpful with all information
requests. Nonetheless, your professional scepticism leads you to suspect there are likely
to be serious operational challenges for BMP Ltd in the next twelve months. (3 marks)
c. Mirrabella Pty Ltd has completed the preparation of its financial statements for 2020/2021,
but it has decided to exclude the Income Statement. The Chief Financial Officer (CFO) of
Mirrabella Pty Ltd explains to you that the users of their financial statements find the
Income statement confusing, too long and unnecessary because the Balance Sheet already
has the essential information which shareholders require. Accordingly, the CFO has refused
to have the Income Statement in the annual report for the year ending 30/06/21.
Furthermore, the CFO has implied that Mirrabella Pty Ltd will be seeking to appoint a
different auditor for the next audit. (3 marks)
d. Your client, Metro-Quinn Ltd, operates a chain of fast-food outlets throughout Australia. It is
now the end of the audit and it was found that major internal control deficiencies exist in
relation to the completeness of recording and banking of cash sales. Cash register tapes are
not available to determine which cash sales amounts should have been recorded and
banked. There is a lack of separation of duties between the custody of cash and its
recording. Metro-Quinn Ltd senior management have not provided any explanation for
these deficiencies, nor have they indicated that they will act on your recommendations to
remediate the problems and issues in the internal control environment. (3 marks)
ANSWER:
A
In the case of Browllow Medal ltd the audit opinion provided is the qualitifed opinion as in this
type of opinion the auditor is not confident relating to some specific aspect of financial
statement. Thus, in the present case of company, the auditor was not able to find financial
statement relating to material investment of the company.
B
HA3032 – Auditing - Final Assessment T2 2021
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In the present case of BMP ltd the audit opinion which is suitable is the adverse opinion. The
reason pertaining to the fact is that, here the auditors are not at all satisfied with the
performance of the company. Here the auditor does not think that the company will continue on
the basis of going concern concept as financial statement of company discloses very concerning
matter.
C
With respect to the present case of Mirrabella Pty Ltd, the auditor will provide a disclaimer of
opnion that is disclaimer report. This audit opinion is provided in case when auditor is avoiding
to provide some opinion to position of company. In connection with the case of Mirrabella Pty
Ltd it was seen that they are not including income statement within their annual report. Hence,
this is not a good because it will not outline the actual postion of the company.
D
In this case as well the auditor will be providing adverse opinion to the company. The reason
underlying this fact is that when the auditor completed it was analysed that there is major
internal control deficiency an this affects the cash sales. Hecne, this is not providing any of the
clear position of the company. Thus, auditor will provide a adverse opinion or the adverse audit
report.
END OF FINAL ASSESSMENT
Submission Instructions:
Save submission with your STUDENT ID NUMBER and UNIT CODE e.g. EMV54897
HA3032
Submission must be in MICROSOFT WORD FORMAT ONLY
Upload your submission to the appropriate link on Blackboard
Only one submission is accepted. Please ensure your submission is the correct
document.
All submissions are automatically passed through SafeAssign to assess academic integrity.
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