Examination Cover Sheet

1. CANDIDATE DETAILS: Student to complete (please print)

Name: ID Number:

2. EXAM DETAILS:
cover) 6

Intake: 10

Year: 2009

Total of pages(incl.

FACULTY: Business and Enterprise Description: International Auditing

Duration of Exam Reading time

Subject Code: HBCO608

3 Hours

15 Minutes

% of overall assessment covered by this exam 75%

3. INSTRUCTIONS TO CANDIDATES
Materials Allowed You may take the following materials/ equipment into the examination venue:

Pens, Pencils, Highlighters and Rulers only no additional materials allowed.

Material/equipment that is not on this list is unauthorised material. Where a student is found in possession of any unauthorised material: That material will be removed as soon as it is detected; and The Student Examination Irregularity procedures of the Assessment and Appeals Policy and Procedures Higher Education will be implemented.

Answering Requirements Candidates should attempt all nine (9) questions. There are a total of 100 Marks on this examination this will be converted to a mark out of 75 when calculating your final grade in this unit.

4. CANDIDATE DECLARATION
I am the person stated above I agree to obey the Examination Supervisors instructions for proper conduct of the exam I have read and understood the Instructions to Candidates provided I understand that it is my responsibility to ensure that I have been correctly enrolled for the above subject and that I am fully liable for any outstanding fees and charges I am aware that I am not allowed to present for any special examination unless approval has been granted by the appropriate Swinburne or external authority

STUDENT SIGNATURE:

DATE:

Question 1

(Taken from Topic 2 Audit Opinions)

As indicated in ASA 700.7 the auditors report must clearly express the auditors opinion on the financial report. Required: a. What specifically must an auditor express an opinion on? b. List and explain the types of audit opinion available to an auditor under ASA 700 and ASA 701. c. You are the audit partner on the following engagements. For each independent and material situation below, indicate the type of audit opinion you would deliver, and explain why. i. Kieko Ltd has prepared financial statements but has decided to exclude the statement of cash flows. Management explains that the users of their financial statements find this statement confusing and prefer not to have it included. ii. The controller of City Hotels Ltd wont allow you to confirm the receivable balance from two of its major customers. The amount receivable is material in relation to the financial statements. You are unable to satisfy yourself as to the receivable balance by alternative procedures. iii. Racoon Ltd changed its method of depreciation from straight line to reducing balance, in accordance with AASB 116 Property, Plant and Equipment. (2 + 10 + 3 = 15 Marks)

Question 2

(Taken from Topic 3 Audit Planning)

ASA 300.18 requires the auditor to develop an audit plan in order to reduce audit risk to an acceptably low level. Required: a. Explain what is included in an Audit Plan, and provide examples to illustrate your understanding. b. List two (2) benefits of having an audit plan. (5 + 2 = 7 Marks)

Question 3

(Taken from Topic 4 Internal Control)

According to ASA 315.95, the auditor shall obtain an understanding of the entitys information system and business processes relevant to financial reporting. Required: a. List four (4) objectives of internal control. b. List five (5) causes of internal control breakdowns. c. Explain what common audit procedures are available to the auditor for gaining an understanding of the control environment? (4 + 5 + 5 = 14 Marks)

Question 4

(Taken from Topic 4 Audit Risk Model)

The audit risk model provides a framework for auditors to follow in responding to assessed risks. Required: a. Where does the audit risk model tell the auditor to focus their attention? b. Explain thoroughly the concept of audit risk, including an explanation of each of the components of audit risk. (1 + 7 = 8 Marks)

Question 5

(Taken from Topic 4 - Assertions)

The auditor formulates an opinion on the financial statement as a whole on the basis of evidence obtained through the verification of assertions related to individual account balances, transaction classes and presentation and disclosure. Required: a. Explain what is mean by the term financial report assertion. Who makes these assertions? b. List and explain each financial report assertion, indicating which category it relates to do not cover the presentation and disclosure assertions. (1.5 + 13.5 = 15 Marks)

Question 6

(Taken from Topic 8 Auditing Sales & Receivables)

You are the auditor for the audit of Coffeemix Pty Ltd. You have sent positive debtors confirmation letters to 30 debtors. The following are the results from the circularisation:
Particulars Confirmation letters received. Signed and agreed by debtors. (i) (ii) No replies from debtors. Confirmation letters returned to the auditor, unopened. The envelopes are stamped No longer at this address. Confirmation letters received indicating that the clients balance was incorrect. No. of confirmations 20 5 2

(iii)

Required: a. Explain the difference between a positive debtors confirmation and a negative debtors confirmation. b. Identify two (2) possible reasons for each of the results in situations (i), (ii) and (iii) above. c. For each situation, provide one (1) audit procedure that should be performed?

(1 + 6 + 3 = 10 Marks)

Question 7

(Taken from Topic 9 Completing the Audit)

You are completing the audit of Damai Berhad (Damai) for the financial year ended 30 June 2009. They are manufacturers of rainwater tanks. The following dates are relevant for the audit engagement: 25 August 2009 9 September 2009 9 October 2009 Date of signing of the Audit Report Date of mailing the audited financial reports to shareholders Date of Annual General Meeting

The following independent and material subsequent events occurred: (i) On 10th July 2009 you discovered that Damais major competitor, Rainwaves Ltd, released a far superior water tank with a recommended retail price significantly below Damais equivalent product. This is expected to negatively impact on sales of the Damai product. (ii) On 1 September 2009, you discovered a legal action commenced against Damai in relation to a faulty product sold in April 2009. (iii) On 20th August 2009 a cyclone/storm destroyed all of the finished rainwater tanks. These had been recognized as inventory, but were uninsured. Required: For each subsequent event identified above: a. Indicate your responsibilities to identify the subsequent event. b. Describe two (2) audit procedures you could have performed to verify the subsequent event. c. State the appropriate action to be carried out and give reasons for your decision. The alternative actions are as follows: Adjust the 30 June 2009 financial report, or Disclose the information in the notes to the 30 June 2009 financial report, or Request the client to recall the 30 June 2009 financial report for revision, or No action is required. (3 + 6 + 3 = 12 Marks)

Question 8

(Taken from Topic 9 Completing the Audit)

Paragraph 5 of ASA 570 Going Concern states: When planning and performing audit procedures and in evaluating the results thereof, the auditor shall consider the appropriateness of the going concern assumption in the preparation of the financial report. Required: a. Define the term going concern, including an explanation as to what is meant by the relevant period. b. What procedures should the auditor perform when a question arises regarding going concern? (4 + 4 = 8 Marks)

Question 9

(Taken from Topic 10 Ethics)

APES 110 Code of Ethics for Professional Accountants is the professional and ethical standard applicable to all professional accountants. Required: a. Clearly distinguish between actual independence and perceived independence. b. Do you think it is more important for an auditor to exhibit actual or perceived independence? c. Give one (1) example to illustrate the Self Interest Threat to independence. d. Give one (1) example to illustrate the Self Review Threat to independence. e. Give one (1) example to illustrate the Advocacy Threat to independence. f. Give one (1) example to illustrate the Intimidation Threat to independence. g. Give one (1) example to illustrate the Familiarity Threat to independence. (3 + 3 + 1 + 1+ 1 +1 +1 = 11 Marks)