ACCT 3044: Graded Activity 3 Case Study

Sem # 1 2223

Case Study 1 and 2 (40%); Individual Assignment

Case Study 1

You are appointed audit senior of Banga & Co for the audit of Cari Appa, a manufacturer of mens coveralls with its year end of 31 July 2019. The following are some of the notes in respect of independent scenarios A, B, and C:

A.

1) A planning meeting between Banga and Cari Appa revealed profit before tax of $24m and total assets of $16m, as per the draft financial statements.

2) You have been requested to audit the material balance of receivables, requiring a positive receivables circularisation to be done.

3) The finance director of Cari Appa informed you that the company was closing an assembly site resulting in redundancy of employees. A redundancy provision of $100,000 is included in the draft financial statements.

4) Three months later, your teams audit fieldwork examines the audit procedures in respect of the redundancy provision. The team has calculated that the necessary provision should amount to $300,000. The finance director is not willing to adjust the draft financial statements.

B. Cari Appa changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current years financial statements, but is reasonably certain to have a substantial effect in later years.

C. Banga & Co includes a separate paragraph in an otherwise unqualified report to emphasize that Cari Appa had significant transactions with related parties.

Required:

1) Discuss the issue in scenario A and describe the impact on the auditors report, if any, should this issue remain unresolved. (20 marks)

2) Discuss the proper reporting option in scenario B. (10 marks)

3) Discuss the inclusion of this separate paragraph in scenario C. (10 marks)