Auditing and Professional Practice: Vignette analysis

Individual Assignment

Auditing and Professional Practice

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Total Weight: The assignment is worth 40% of the total unit weight.

Instructions:

  1. Students are required to cover all stated requirements.
  2. Your answer must be both uploaded to Moodle in word

file and handed over a printed copy.

  1. You need to  support  your  answers  with  appropriate

Harvard style references where necessary.

 

1

Scenario One: (500 Words)

You have been asked by your audit client, Bolts Ltd (Bolts), to prepare a report that

analyses the potential acquisition of Steel Pty Ltd (Steel). Prior to conducting your

analysis, you decide to verify the accuracy and completeness of the cash flow statement

provided by Steel for the year ended 30 June 2012. After reviewing a draft of your

analysis, the chief financial officer (CFO) of Bolts has asked you to focus your attention

on the sales and profitability of Steel and to avoid the distraction of cash flow reporting.

He suggests that the acquisition will provide substantial future financial benefits to Bolts

and that confusing the board with cash flow issues would not be helpful to the acquisition

or to the likelihood of your being asked to undertake similar engagements in the future.

Required

List two threats to compliance with the fundamental principles that may exist resulting

from your discussion with the CFO, and identify the fundamental principles at risk of

being breached.

Scenario Two: (1000 Words)

Luke and Zane are two audit seniors working for the same Big Four accounting firm.

Both started employment with the firm around the same time. They have mutual respect

for each other; however, they have been highly competitive since they commenced work

together.

Luke has recently married and he and his wife are paying off their mortgage. Zane is

single with a reputation in the firm for playing hard but working hard too. They have both

been seniors for almost 18 months and are looking for promotion to audit supervisor.

They are both aware that there is only one supervisor position available.

Luke recently replaced Zane on a particular job, and the reason given to both Luke and

Zane was that another assignment had arisen with a long-time client of Zane’s. Once Luke

had replaced Zane on that particular job, he realised that the client had called the audit

manager to say that they were not impressed with Zane, as he had missed a number of

issues within the audit and was arriving at work late. The audit manager had not discussed

these comments with either Luke or Zane. After going through the work that Zane had

completed, Luke realised that Zane had performed an excellent job, identifying a number

of issues that he thought he might possibly have missed. Furthermore, Luke suspects that

Zane and the client had a personality conflict, and that the client has misled the audit

manager.

Luke realises that he can finish off the audit, resolve the issues and obtain a good review

from this assignment, which would help him in the promotion stakes. He also knows that

the audit manager is unlikely to bring the client’s unsupported allegations to Zane’s

attention.

Required

(a) Work through this scenario using the American Accounting Association decision-

making model, and decide what action Luke should take.

(b) Would your decision be any different if you used the Mary Guy decision-making

model

2

Scenario Three: (1000 Words)

 

The Peak Sawmill Limited (Peak) operates a timber sawmill in a large regional town. It

sources its raw material (pine logs) from a number of local growers and from its own

plantations. Logs are transported on large trucks that are weighed in on the company’s

weighbridge and weighed out after dropping their loads in the storage area. Logs are then

debarked and sawn to size in the cutting area of the mill. The various logs are then sent to

other areas of the sawmill depending on what they will be used for.

 

You are a senior on the audit. In the planning stage of the audit, you perform analytical

procedures. In the current audit period, the average number of days to pay creditors has

declined significantly from the average recorded over the past three financial years.

 

Your investigation reveals that log suppliers represent more than 90 per cent of the value of

accounts payable. As an internal control, details of the goods received notes are matched

against the supplier’s invoice. The accuracy of the invoice is checked, after which the

invoice is authorised for payment by the mill accountant. Any discrepancy between what the

supplier’s invoice amount should be and the actual amount charged by the supplier is

communicated to the supplier by way of a pre-numbered ‘request for credit’ form. This form

provides reasons for the differences and the amount requested to be credited to the company

by the supplier.

 

The correct amount of the invoice is entered into the accounts payable accounting system

and the supplier’s monthly statement is reconciled to the accounts payable balance per the

creditors’ ledger at month end. The differences are mostly attributable to:

 

unprocessed invoices due to pricing differences

 

timing differences in the recorded date of a payment made

 

amounts requested for credit

 

settlement discounts disallowed.

 

Cathy Vernon, the company’s financial controller, informs you that due to the increase in the

price of timber, new contracts with suppliers have been negotiated over the past year. The

accounts payable personnel have complained that management is too slow in informing

them about the effective dates of the implementation of the contracts and the revised prices.

A brief inspection of the accounts payable reconciliations for five of the biggest suppliers

indicates that many invoices are being held back due to the lack of correct pricing.

 

Required

 

(a) List two key assertions at risk in relation to accounts payable.

 

(b) Provide your justification for each assertion.

 

(c) For each assertion, outline one substantive test of detail to obtain sufficient

 

appropriate audit evidence.

3

Assessment Marking Criteria

Assessment Task: Individual Assignment

Assessed Unit Learning Outcome(s)

Demonstration of early stage learning about:

Explain and analyse the nature, underlying concepts and principles of auditing

Describe and evaluate the regulatory, professional, and societal roles and responsibilities of

the auditor including their risk exposures.

 

Assessment Criteria Comments

Knowledge Development

(30%)

Discussion of the theoretical concepts of risks

assessment, tests of control and substantive

procedures and how the audit planning should

be conducted.

Identification of relevant theoretical

perspectives.

Application (40%)

Application of theory in literature to the

question.

Utilisation of case scenario to support

argument/discussion.

Application of critical thinking in the

argument/discussion.

Presentation (30%)

Presentation of a convincing and effective

written argument/discussion that meets

academic standards in relation to clarity, logical

structure, coherence, expression and technical

aspects (grammar, spelling, referencing).

4

Grade