diff_months: 20

HA3032 Auditing Assignment

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Added on: 2022-08-20 00:00:00
Order Code: 434004
Question Task Id: 0

Part A

ABC Ltd is a construction company. Control of the company is in the hands of the ABC family, who have been majority shareholders for more than 20 years. Mr. A is chairman and managing director. The other three directors, one of whom is a member of the ABC family, all hold senior positions within the organization. Seventy percent of the company's construction contracts are government contracts, with the remaining contracts being small shopping centers or business centers.

Mr. A has informed you of the following facts concerning the past year and future trends:

During the year the company won a major contract to construct a number of buildings on a university campus. The project is particularly interesting as all the facilities must be capable of transmitting and receiving videoconference broadcasts and acting as high-tech virtual classrooms. ABC Ltd has not been involved in this type of work before but believes that it will lead to a lot of similar work in the private sector.

Reconciliations of the debtor's statements to the debtor's ledger were performed incorrectly for a three-month period while a clerk was on leave. These reconciliations were approved by the accountant. The errors were detected by the debtor's clerk on his return and all errors were corrected.

ABC Ltd keeps a small store of building materials in its main warehouse. The warehouse manager is responsible for ordering goods, receipting goods, and paying creditors.

A bonus incentive scheme was introduced for the supervisors at the construction sites to ensure that buildings would be completed on time.

Requirement:

  1. Explain Audit planning and why risk assessment is important as part of audit planning.
  2. Explain what factors are influencing inherent risk at the financial report level and the assertion level.
  3. Based on the above information, identify inherent risk factors for ABC and explain their impact on the financial report.

Part B

XYZ Ltd is a large company involved in a number of technology projects, including mobile networks and digital equipment. XYZ has created a number of subsidiaries to concentrate on specific aspects of XYZ's activities. While XYZ and its subsidiaries each have an individual bank account, all of the main banking activities of the group are undertaken through the bank account of XYZ. Jay, the senior banking clerk of XYZ, maintains and monitors all of the accounts. Your preliminary discussions with Jay indicate the following:

The proceeds of the technology operations are deposited in the subsidiaries' bank accounts.
XYZ pays all expenses of the group, including the costs of the technology operations.
Each subsidiary reimburses XYZ on a quarterly basis for costs associated with its activities and also pays it a management fee. Payments are completed via a direct transfer between the bank accounts. The transfer is authorized by the chief financial officer (CFO) of XYZ and the chief executive officer (CEO) of the relevant subsidiary. Jay's responsibilities include preparing a schedule of transfers each quarter and reconciling each of the bank accounts.

  1. Explain which assertions are most likely to be assessed as high risk for material misstatement for the cash balances of Digital Solutions and its subsidiaries.
  2. Outline three substantive audit procedures that may be used to test whether these risks will result in a material misstatement and indicate the assertion addressed.

Requirement:

  1. In general, explain what the difference between management controls and transaction controls is.
  2. In regard to the above case, which assertions are most likely to be assessed as high risk for material misstatement for the cash balances of XYZ and its subsidiaries?
  3. Explain three substantive audit procedures that may be used to test whether these risks will result in a material misstatement and indicate the assertion addressed.
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  • Posted on : August 03rd, 2022
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