Monitoring Test MT2C

Advanced Audit and

Assurance
P7AAA-MT2C-Z16-Q

Time allowed 1.5 hours

All THREE questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.

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ALL THREE questions MUST be answered

1 You are the manager responsible for the audit of Albreda Co and its subsidiaries. The group
mainly operates a chain of national restaurants and provides vending and other catering
services to corporate clients. All restaurants offer “eat-in”, “take-away” and “home delivery”
services. The draft consolidated financial statements for the year ended 30 September 2016
show revenue $42.2 million (prior year – $41.8 million), profit before taxation of $1.8 million
(prior year – $2.2 million) and total assets of $30.7 million (prior year – $23.4 million).

The following issues arising during the final audit have been noted on a schedule of points for
your attention:

(a) In September 2016 the management board announced plans to cease offering “home
delivery” sales of food and beverages that amounted to $0.6 million for the year to
30 September 2016 (prior year – $0.8 million) at the end of the month. A provision
of $0.2 million has been made as at 30 September 2016 for the compensation of
redundant employees (mainly drivers). Delivery vehicles have been classified as
non-current assets held for sale as at 30 September 2016 and measured at fair value
less costs to sell $0.8 million (carrying amount $0.5 million). (12 marks)

(b) During the year Albreda paid $0.1 million (prior year – $0.3 million) in fines and
penalties relating to breaches of health and safety regulations. These amounts have
not been separately disclosed but included in cost of sales. (8 marks)

Required:

For each of the above two issues:

(i) comment on the matters that you should consider; and

(ii) state the audit evidence that you should expect to find,

in undertaking your review of the audit working papers and financial statements of
Albreda Co for the year ended 30 September 2016.

NOTE: The mark allocation is shown against each issue.

(20 marks)

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2 (a) Explain the auditor’s responsibilities for reporting non-compliance that comes
to the auditor’s attention during the conduct of an audit. (5 marks)

(b) Under ISA 720 The Auditors’ Responsibility in Relation to Other Information
(Revised) the auditor has a professional responsibility to read other information to
identify material inconsistencies with the audited financial statements (or his
knowledge of the entity) and material misstatements in the other information.

Explain the requirements of ISA 720 on the auditor’s report. (5 marks)

(c) The purpose of ISA 510 Initial Engagements – Opening Balances is to establish
standards and provide guidance regarding opening balances when the financial
statements are audited for the first time or when the financial statements for the prior
period were audited by another auditor.

Explain the auditor’s reporting responsibilities that are specific to initial

engagements. (5 marks)

(15 marks)

3 “Commercial organisations are increasingly making “Value for Money” their claim to
superiority. Some claim this in terms of their offerings to customers; others claim to obtain
VFM in the use to which they put investor’s funds.

“At the same time, organisations are made aware of the social and environmental
responsibilities expected from them.”

Required:

(a) Contrast the terms “value for money”, “social responsibility” and
“environmental responsibility” (6 marks)

(b) Comment on whether it is possible for an organisation to deliver all three

aspects of performance at the same time. (3 marks)

(c) Discuss whether an auditor’s current training, education and work experience
adequately equips him for undertaking an assignment where VFM, social
and/or environmental concerns are to be reported on. (6 marks)

(15 marks)

End of Question Paper

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