Auditing 12th Edition Alan Millichamp, John Taylor - Solutions

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Draft a form of questionnaire, which you would use for determining the effectiveness of the client’s internal control over payrolls.
(a) Distinguish briefly internal control, internal check and internal audit. (b) Discuss the general considerations in framing a system of internal control in respect of purchase of goods.
Comment on the following statements:(a) “The statutory auditor is entitled to rely on the internal auditor”.(b) “The statutory auditor should test internal control system before relying on the same”.
(a) Discuss the objectives of Internal control system. (b) Discuss the advantages and limitations of internal control system.
“In a good system of internal check, the work of one is checked indirectly by the work of another”— Explain and discuss this statement with examples.
What system of internal check would you recommend for a manufacturing company to prevent fraud in connection with credit purchase of raw materials?
Albert David Supplies Ltd. have a large warehouse in Pune from which they supply their customers with over 1,000 chemicals and medicines purchased from numerous suppliers both in India and abroad. They do not maintain a continuous inventory of their stocks. At the year end, Tuesday, 31 March 2007,
Your client is a whole sale merchant of electrical goods with a head office in Mumbai and four branches in Kanpur, Nagpur, Chennai and Kolkata. The client has total annual sales of Rs. 10 lakhs and total stocks of Rs. 2 lakhs. The stocks are located as follows: Head office, Rs. 75,000; Kanpur
Both Cicero Ltd (from Chapter 4) and Mainbrace Ltd (from Chapter 3) have realized that things cannot go on as they are. They have approached audit firm Tickitt & Run who have agreed to act and are currently setting up a meeting with each company to explain the legal and audit
Jasmine Co. manufactures motor vehicle components and its year end was 31 March 202X. Total assets are £43.2m and profit before tax is £7.2m. The following matter has been brought to your attention: During the final audit, the finance director informed the audit team that Jasmine Co.’s
At what other stages of the audit are analytical procedures performed?
How do auditors communicate with management?
What options do auditors have if they detect a fraud by management?
Convoluted Ltd is a company dealing in rare metals internationally. It has 40 employees (25 in the UK). It is owned by Joe King Ltd, a company registered in the Cayman Islands and is known to deal with several other UK and overseas companies also owned by that company. The company has four
Why are related party transactions and ultimate ownership important to the true and fair view?
Puce Watermelon have recently been appointed auditors to Massive Holdings plc, a group of ten companies based in the North of England. Massive has subsidiary companies, all of which are wholly owned, which trade in various activities from machinery importers to car dealerships.One of the auditors,
List the requirements of ISA(UK)550.
What are the risks that auditors face in this area?
How might an auditor seek confirmation of directors’ representations and assess their completeness?
What matters might give concern to the auditors in preparing the auditor’s report?
Hippay plc, a listed company, has outsourced all their employee (including directors) remuneration to a service organization. Hippay writes bespoke and general application software for environmental recording and employs 97 people.Discussion– Discuss the business risks attached to this company
Which ISA relates to service organizations?
You are the auditor of Petite Ltd, a small company. In order to reduce the company's administrative costs, the financial director proposes transferring all the Receivables and Payables Ledger processing to a computer services company. Batches of invoices will be sent weekly to the company which
Why do firms outsource?
What clauses in an outsourcing contract may be relevant to the auditor?
List risks which arise to a firm as a result of outsourcing.
What special risks arise from outsourcing accounting records?
List actions that auditors can take to amass audit evidence in the presence of an outsourced function.
What might be covered in a report to users by an outsourcer’s auditor?
What actions should the client’s auditors take in respect of such a report?
Slipp & Slide are conducting the final audit of Woodhood plc who are importers and dealers in timber and manufacturers of packing materials. The accounts show results which are comparable to those of the previous year. The auditors are puzzled by this as they know that the company is having
What is the definition of an adjusting event?
You are the audit managers of Runne & Hyde, carrying out a final review of the audit files of your client Gabriella Enterprises Co. for the year ended 31 September 202X. The financial statements are expected to be approved in the Annual General Meeting, which is to be held on 29 November 202X.
Pingo Manufacturing Ltd imports electronic components and assembles them in a factory to make consumer gadgets which appeal to a younger market. They have traded successfully for many years because of favorable market conditions and extended their factory in 202X with the aid of a very large bank
After the year end, but before the Auditor’s Report is signed, there is a big fire at Megablow plc and their biggest factory burns down throwing the future of the company into doubt. How should this be treated (i) in the accounts and (ii) by the auditors?
Killemall Plc is an established pharmaceutical company that has for many years generated 90 per cent of its revenue through the sale of two specific cold and flu remedies. Killemall has lately seen a real growth in the level of competition that it faces in its market, and demand for its products
List general and specific procedures to be adopted to identify relevant subsequent events.
Summarize an auditor’s duties in respect of events occurring between the date of the Auditor’s Report and the laying of the financial statements before the company.
Define the going concern basis.
What is the period which has to be considered and when does it start from?
List the consequences to the financial statements of not adopting the going concern basis.
List the directors’ duties in respect of going concern basis.
List the key audit procedures in respect of going concern basis.
List the possible Auditor’s Reports in respect of going concern basis.
State the UK Corporate Governance Code requirements on going concern basis.
Explain the purpose of a management Letter of Representation.
Runne & Hyde are auditors of the Zombrit Group plc. The accounts for the year ending 31 March 202X are being subjected to the final review. The following matters have been noted by the audit manager:(a) The company has engaged in a number of long-term contracts in the Far East. During the last few
Why should a Letter of Representation be obtained?
What kind of matter should be included in a Letter of Representation?
What should the auditor do if the client refuses to give one?
A suggested format for the Letter of Representation has been sent by the auditors to the directors of Crighton-Ward. The directors have stated that they will not sign the Letter of Representation this year on the grounds that they believe the additional evidence that it provides is not required by
Angela Goodbody is a partner in Huppe & Downe and has come to the audit of E-musica Ltd to carry out a hot review of the audit which is in progress for the year ended 31 March 202X. E-musica have their own record label for dance and rap music, they sell musical equipment and control three recording
What is the auditor’s interest in comparative figures?
You are a partner in the audit firm of Younge & Foolisch. The audit of Bouncy Co. Ltd., a manufacturer of beds and mattresses, is nearly complete, and the audit files have been sent to you as the engagement partner for a final review. The company’s year-end was 31 March 202X. Several points have
What aspects of the comparative figures is the auditor responsible for?
Your firm, Tickett & Wrunne is the external auditor of Cornflower Ltd (Cornflower). You are the audit manager and are conducting your final review before passing the file to the audit engagement partner. The audit file contains the following relevant information:(i) Cornflower's core business has
What should the auditors do about previous accounts if they audited them and gave a clean report?
What additional work should be performed if the previous accounts were audited by another firm?
What paragraphs would appear in an Auditor’s Report if there was an uncertainty in the opening balances on fixed assets?
What actions may be required as a result of a final review?
Distinguish analytical review from overall review of financial statements.
Why is it necessary to carry out a final review?
Hamm & Jamm LLP have just completed the audit of Gofaster Motors Ltd for the year ended 31 December 202X. They asked one of the audit staff to draft the audit report and he produced this:Report of the Auditors to Gofaster Motors LtdBasis of opinionWe conducted our audit in accordance with auditing
Distinguish between a hot review and a cold review.
Who would carry out a hot review and when?
List the necessary procedures which would take place at a final review.
List the main contents of an Auditor’s Report.
You are the audit manager in JonArc & Co. One of your new clients this year is Galartha Co., a company having net assets of £15m. The audit work has been completed, but there is one outstanding matter you are currently investigating: the directors have decided not to provide depreciation on
Why are there paragraphs concerning directors in the Auditor’s Report?
How do the auditors sign their report?
What does ‘pervasive’ mean?
What is a Key Audit Matter?
How does a Key Audit Matter differ from an item which is reported under an Emphasis of Matter paragraph?
If audit scope is restricted partially what form of report might be made?
Explain what the principle is behind the inclusion of the Bannerman wording.
Under what circumstances would the auditors state that the financial statements do not present a true and fair view?
How does the auditor report non-compliance with the requirements of the Stock Exchange listing rules?
Dunbar Manufacturing PLC is a multi-product manufacturing company with four factories around the country. The auditors, Flossy & Co. LLP, have completed the interim audit for the year ending 31 December 202X in September 202X and are considering their report to management. The matters they have
Equestrian Co. manufactures smartphones and tablets. Its main customers are retailers who then sell to the general public. The company’s manufacturing is spread across five sites and goods are stored in nine warehouses located across the country. You are an audit supervisor of Equestrian Co.
When should these Management Letters be sent?
As well as the formal audit report to members at the conclusion of the audit, it is customary for the auditor to report to those charged with governance of the client company, drawing attention to any weaknesses or issues in the system of internal control encountered in the course of the audit. You
Apart from weaknesses in systems, what other matters need to be communicated to management?
List the contents of a basic Management Letter.
Bangi Chemicals Ltd makes chemicals for the defense industry. They had no subsidiary companies, but in mid 202X, they acquired 60 per cent of the share capital of a US company for £6m paid partly in cash and partly in shares in Bangi. The net assets of the US company, Chemola Inc., were about
What considerations as to the value of investments on a holding company Statement of Financial Position are relevant to the audit?
(a) Explain the role of 'support letters' (also called 'comfort letters') as evidence in the audit of financial statements.(b) You are an audit manager in Wilde & Free LLP, a firm of Chartered Certified Accountants, and currently assigned to the audit of Capri Group. The consolidated financial
List the auditor’s duties regroup accounts.
How should a group engagement team evaluate the work of a component auditor?
What is a ‘comfort letter’ and how is it used?
How do auditors deal with a difference in auditing standards between principal and component auditors?
Why is it difficult to form an opinion when consolidated accounts include associated companies?
What is a transnational audit?
Why do transnational audits pose problems for audit firms?
Fisch & Schipp are the auditors to AHM Publishing Co. Ltd, publishers of textbooks. They carried out the audit for the year ended 31 December 202X and signed an unqualified audit report. Shortly after the AGM, which was on 23 June 202Y, negotiations began for the sale of the company to Amalgamated
How can an auditor be criminally liable under the Companies Act?
You are an audit partner with Tickett & Run and three months ago you signed off the audit of Blastypot plc, a large engineering group with several subsidiaries. The turnover of the group was £750m and it reported a profit for the last financial year ended 31 March 202X of £22m.You receive a call
Zong & Dansse LLP, the auditors to Daffodil Ltd, gave an unqualified report on 14 January 202X on the accounts for the year ending 30 November 202W. These accounts were seen by The Wednesfield Bank plc in February 202X and the bank lent £250,000 to Daffodil on short-term overdraft on 19 March
How can an auditor be liable under the civil law?
What conditions must be satisfied for an auditor to have to pay damages? How can an audit firm minimize its potential for paying damages?
Summarize the Caparo case.

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Auditing 12th Edition Alan Millichamp, John Taylor - Solutions

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