Can yoU please ans main concept of ALL questions given in attached file.This is an audit assignment OF SEM 2 2017 CDU

UNIT CODE: ACT504 UNIT NAME: AUDITING Written Assignment Information Semester 2 2017 Total Marks: 60 marks and to be weighted @ 30% Length: Maximum 3,000 words Submission Requirements. This assignment may be submitted at or before 11.59pm (CST) Sunday, 24 Sept 2017, Study Week 9 Assignments are to be submitted by one of the following means; DO NOT LODGE BY FAX nor EMAIL nor at LECTURER'S OFFICE KEEP A COPY The assignment must be lodged on or before the due date indicated in the assignment details. Submit your Assignment as one document, using PDF or Word doc format1 . The assignment must conform to the requirements set out in this assignment The assignment must be lodged online via the ACT504 Learnline Assignment Lodgement link on the ACT504 Learnline site. Ensure your file is named using a file naming convention that allows the lecturer to identify to whom it belongs. Failure to use an acceptable file naming convention may result in your assignment lodgement being rejected. DO NOT LODGE VIA EMAIL or FAX - assignments lodged by email or fax will not be accepted. KEEP A COPY - Ensure you have a copy of the assignment lodged. Coversheet Coversheets are no longer required. Students will now be required to affirm at the point of submission that the work they are submitting is their original work. This is built into the submission point. The submission text reads as follows: By clicking the SUBMIT button I certify that this assignment is my own work, based on my own personal study and research, and that I have acknowledged all material and sources in the preparation of this assignment, whether they be books, articles reports, lecture notes, images, videos, any other kind of document or personal communication. I also certify that this assignment has not previously been submitted for assessment in any other course or at any other time in the same course (except as a DRAFT submission) and that I have not copied in part or whole or otherwise plagiarised the work of other students and/or persons. I have read Charles Darwin University's Academic and Scientific Misconduct Policy (pol-001) and Student Breach of Academic Integrity Procedures http://www.cdu.edu.au/governance/procedures/pro-092.pdf and understand its implications. 1 Instructions for creating PDF documents and/or combining documents of different formats are provided on the Learnline site. CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 1 of 7 Format The assignment may be completed manually, or with the use of an electronic spreadsheet, word processing software or with the use of accounting software. Marks may be deducted for illegible or partially illegible papers. If completed using multiple file formats or manually, the document must be combined into one document, in PDF format2. Resubmission As a general rule resubmission of assessment items is NOT possible, however the Lecturer may ask for resubmission if it is deemed appropriate. Details for such resubmission will be made available by the Lecturer if and when the situation occurs. Oral Test or Viva Voce Lecturers may, at their discretion, ask students to verbally present their assignment submissions or rewrite some selected part/s of their answer in a controlled setting. Lecturers may exercise this discretion where they feel that the assignment was not the student's own work. University Plagiarism policy Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal article, the internet, or a previous essay you wrote or the assignment of a friend. Plagiarism policy is available at: http://www.cdu.edu.au/governance/policies/pol-001.pdf and Student Breach of Academic Integrity Procedures http://www.cdu.edu.au/governance/procedures/pro-092.pdf Extensions and Late Lodgements LATE ASSIGNMENTS WILL GENERALLY NOT BE ACCEPTED UNLESS AN EXTENSION TO THE DUE DATE HAS BEEN GRANTED BY THE HEAD OF SCHOOL. Exceptions will only be made where assignments are late due to special circumstances that are supported by documentary evidence, and may be subject to a penalty of 5% of assignment marks per day. Partially completed assignments will be accepted with appropriate loss of marks for the incomplete portion. Should students foresee potential difficulties with submission of assessment items, they should contact the lecturer immediately the difficulties come to notice, to discuss suitable arrangements etc for the submission of those assessment times. An Application for Assignment Extension or Special Consideration should be completed and provided to the Head of School, School of Law and Business. This application form, explanation and instructions is available on the ACT504 CDU Learnline course site or direct from http://learnline.cdu.edu.au/units/lb_school_templates/deployed/assignment_extension.docx Please note that it is now Faculty policy that all extension requests must be approved by the Head of School. The lecturer is no longer able to personally approve extension requests. Leaving a request for an extension, special assessment or special consideration until the last moment, based on grounds that students could have reasonably been able to foresee, may result in the application being rejected. Ensure that you maintain suitable backup copies of your assignment during preparation, before completion and after lodgement. Loss of data/assignment due to failure to maintain a suitable backup will not constitute grounds for an extension. 2 Instructions for creating PDF documents and/or combining documents of different formats are provided on the Learnline site. CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 2 of 7 Assignment Details Part A (20 marks) Part A-1 You are an audit partner with Billings & Associates, a large and experienced audit firm. You have been approached to accept the audit of Pharmaceuticals Ltd (Pharmaceuticals), a medium-sized chemical manufacturer. The manufacture of the chemicals results in highly toxic waste and Pharmaceuticals is currently under investigation by the Environmental Protection Agency for a significant spill of toxic chemicals into a nearby river. The media have reported that senior employees were allegedly involved in trying to cover up the spill. Required: Identify and explain the key ethical matter regarding Pharmaceuticals and its management that you should consider before making the decision to accept the engagement. (2 Marks) Part A-2 Pharmaceuticals Ltd (Pharmaceuticals) imports a number of pharmaceutical products. In order to hedge its foreign currency transactions, Pharmaceuticals entered into a number of forward rate agreements this year. Prior to this time Pharmaceuticals had had little exposure to derivative instruments, but a series of bad experiences resulting from fluctuating exchange rates convinced the company that a hedging strategy was necessary. During planning for the audit of Pharmaceuticals, the company's hedging arrangements were identified as inherently risky and increased testing was carried out in this area. A number of small errors were noted in accounting for hedge transactions, but there did not appear to be any material errors and as such no adjustments were made. A review of the audit file suggests that the errors noted were a result of inexperience and poor controls in the area. While all of the errors were brought to the attention of the treasurer, who is responsible for the company's hedging strategy, no further action has been taken to date. Required: Outline what further action the auditor should take in response to the errors and control weaknesses identified. Justify your response. (2 Marks) CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 3 of 7 Part A-3 Billings & Associates has agreed to take on a new audit client, Reaction Pty Ltd, a small garage door manufacturer that has never previously been audited. Billings & Associates has issued an engagement letter prior to commencing work for the current year. While conducting the audit, the audit team is unable to gain sufficient appropriate audit evidence around accounts receivable due to a lack of documentation. You have informed client management that you need to issue a modified auditor's report due to the scope limitation. In response, management has requested that the engagement become a review engagement with the associated lower level of assurance, as they are not required to have an audit. Required: Outline the appropriate response to this situation. Provide reasons to support your response. (4 Marks) Part A-4 Consider the following independent situations: 1. You are the auditor of Hail Pty Ltd a medium sized furniture manufacturer. Your audit firm has finalised the financial statements after the client has substantially prepared the accounting records. However, the client admits to having limited knowledge of identifying and calculating impairment and has asked for your assistance. You have proposed a number of adjustments to account for the impairment of assets. 2. You are the auditor of Travel Time Ltd, a large travel agent that also handles all your audit firms travel arrangements on normal commercial rates and provides excellent service. The managing director of Travel Time has indicated that the company is having a tough time of it due to the lack of consumer confidence in the economy at the moment and has asked if you could help by recommending their services to your other audit clients. He has said that he will understand if you are not able to do so. You happily agree to provide the recommendation, as you have always been satisfied with their service. 3. Your audit firm has been approached by a new client, Civil Constructions Ltd, to conduct the audit for the coming year. As part of your client acceptance procedures, you identify that the wife of one of the audit firm's partners has a substantial shareholding in Civil Constructions Ltd. 4. Your audit client, Pleasure Cruises Ltd, is having cash flow problems and has not paid any of the current year's fee by the time the auditor's report is due to be issued. They expect business to pick up in the coming year and have requested an additional time to pay the bill. Required: For each of the independent situations above: a) Identify the type of potential threat to independence. Justify your answer. (8 marks) b) Describe a safeguard, if any, which could be implemented to reduce each of the independence threats. (4 marks) CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 4 of 7 Part B (10 marks) You are currently planning the audit of Convenience Plus Pty Ltd (CPPL), a large proprietary company that operates a small chain of convenience stores. You are in the process of developing an understanding of its objectives and strategies and the related business risks. Competition in this sector is intense, with major supermarket chains aggressively purchasing smaller rivals and discounting products below cost in order to increase market share. In order to compete, CPPL has been forced to offer value-added services such as complimentary coffees based on a loyalty scheme. While these strategies have helped to maintain its customer base, its gross margins have dropped by 10%. In an effort to increase profits, CPPL has recently focused on expanding the products available in each store. However, these items have achieved only limited acceptance to date among CPPL's customers and stock obsolescence is high. All of CPPL's premises are leased. Two of the leases are due to expire prior to the end of the current financial year. In both cases, the land on which the premises are situated has been re-zoned as residential. Due to \"prior use\" legislation, this does not prevent the premises from being used as a supermarket in the future. However, it does mean the land's value has increased and, on this basis, the lessor is demanding a 50% increase in rent. CPPL is also experiencing difficulties with two of its major suppliers, who have withdrawn their volume rebates and reduced payment terms from 30 to 14 days. In addition, CPPL has recently initiated legal action against a major supermarket chain for anti-competitive behaviour and predatory pricing. REQUIRED: (a) Identify five (5) business risks, as per ISA 315, which may lead to the risk of material misstatement at the financial statement level for CPPL. (5 marks) (b) For each business risk you identified in (a) above, describe how it may lead to the risk of material misstatement at the financial statement level. (5 marks) You may wish to present your answer to (a) and (b) using the following table: (a) Business risk (b) How it might lead to risk of material misstatement CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 5 of 7 Part C (20 marks) Background Toy Universe Pty Ltd (TUPL) is a toy manufacturer. TUPL has factories across the country and its customer base includes retailers, as well as individuals, to whom direct sales are made through their website. You are an audit senior at Harley Quinn & Associates and you are currently reviewing documentation of TUPL's internal controls in preparation for the interim audit. TUPL's website allows individuals to order goods directly and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed. Goods are delivered via local couriers; however, the couriers do not always record customer signatures as proof that the customer has received the goods. Over the past year, there have been customer complaints about the delay between sales orders and receipt of goods. TUPL has investigated these complaints and found that, in each case, the sales order had been entered into the sales system correctly, but was not forwarded to the despatch department for fulfilling. TUPL's retail customers undergo credit checks prior to being accepted and credit limits are set accordingly by sales ledger clerks. Neither the sales area managers nor the sales director are involved with this process. These customers place their orders through one of the sales team, who decides on sales discount levels. Raw materials are purchased from a wide range of suppliers. As a result of staff changes in the purchase ledger department, supplier statement reconciliations are no longer performed. Additionally, changes to existing supplier details or inclusion of new supplier details in the purchase ledger master file can be undertaken by purchase ledger clerks, as well as supervisors. In the past six months, TUPL has changed part of its manufacturing process and as a result some new equipment has been purchased. However, there are now considerable levels of plant and equipment that are now surplus to requirement. Purchase requisitions for all new equipment have been authorised by production supervisors and little has been done to reduce the surplus of old equipment. REQUIRED: a) Identify five (5) deficiencies in the internal controls of TUPL. Explain how a business risk arises from each deficiency. (10 marks) b) Describe a control which TUPL could implement to address each of these deficiencies. (5 marks) c) Design a test of control Harley Quinn & Associates would perform to assess if each of those controls identified in (b) above is operating effectively. (5 marks) You may wish to present your answer in a table format, as follows: (a) Deficiency Explanation (b) Control CDU Business School Faculty of Law, Education, Business and Arts (c) Test of control Semester 2 2017 Page 6 of 7 Part D (10 marks) Phil, an audit senior at KMC Partners (KMC) is currently reviewing the materiality level for one of his clients, Sali Ltd (Sali). In March 20X6, Sali decided to move from the SuperD IT system to the SuperB IT system. The expected completion date of the transition was June 20X7. Due diligence was performed on the new system and another auditor (PGD) was engaged to perform data migration work. KMC liaised with PGD on several occasions to obtain access to their workpapers in order to obtain sufficient appropriate audit evidence around the data migration. No major issues were noted. Ten well-regarded staff members of Sali were made redundant in April 20X7, and as a result, staff morale is very low at Sali. Employees are wondering who will go next, and do not feel that their jobs are safe. Most of them are putting in extra hours, but despite this, the lack of motivation is seriously impacting the quality of their work. Some senior staff members have decided to search the current job market for another suitable positions. It is now 8 July 20X7 and the audit team is currently finalising its substantive testing and tests of controls. Phil becomes aware of the following events: Event Description 1 Sali's finance manager abruptly resigned in June 20X7, and no replacement has been found. 2 Sali's HR manager resigned in June 20X7, and a replacement was found in July 20X7. 3 While performing a full reconciliation of data on SuperD to data on SuperB as at 30 June 20X7, two material variances were discovered. Phil inquired with management who confirmed that these were errors that will be fixed. 4 While finalising the controls testing of the unlisted investments, the audit team note an issue with one of the 40 samples selected for testing: Description of Issue: No purchase document on file for Dune Ltd which makes up 14% of the unlisted investments. Response by Sali: The purchase occurred on 29 June 20X7, and most entities take a week to provide the associated documentation. We made an urgent request to Dune Ltd, obtained the purchase document, and sent them to the KMC office on 7 July 20X7. REQUIRED: Determine the impact of each event on the materiality amount (increase, decrease, no impact). Explain your answers. (10 marks) You may wish to present your answer in a table format, as follows: Event Description Impact on Materiality Explanation *** End of Assignment*** CDU Business School Faculty of Law, Education, Business and Arts Semester 2 2017 Page 7 of 7