You are the manager responsible for performing hot reviews on audit files where there is a potential disagreementbetween your firm and the client regarding a material issue. You are reviewing the going concern section of the auditfile of Dexter Co, a clie

正确答案：
(b) (i) Matters to consider
Materiality
The receivable represents only 0·2% (25,000/12 million x 100) of total assets so is immaterial in monetary terms.
However, the details of the transaction could make it material by nature.
The amount is outstanding from a company under the control of Pulp Co’s chairman. Readers of the financial statements
would be interested to know the details of this transaction, which currently is not disclosed. Elements of the transaction
could be subject to bias, specifically the repayment terms, which appear to be beyond normal commercial credit terms.
Paul Sheffield may have used his influence over the two companies to ‘engineer’ the transaction. Disclosure is necessary
due to the nature of the transaction, the monetary value is irrelevant.
A further matter to consider is whether this is a one-off transaction, or indicative of further transactions between the two
companies.
Relevant accounting standard
The definitions in IAS 24 must be carefully considered to establish whether this actually constitutes a related party
transaction. The standard specifically states that two entities are not necessarily related parties just because they have
a director or other member of key management in common. The audit senior states that Jarvis Co is controlled by Peter
Sheffield, who is also the chairman of Pulp Co. It seems that Peter Sheffield is in a position of control/significant influence
over the two companies (though this would have to be clarified through further audit procedures), and thus the two
companies are likely to be perceived as related.
IAS 24 requires full disclosure of the following in respect of related party transactions:
– the nature of the related party relationship,
– the amount of the transaction,
– the amount of any balances outstanding including terms and conditions, details of security offered, and the nature
of consideration to be provided in settlement,
– any allowances for receivables and associated expense.
There is currently a breach of IAS 24 as no disclosure has been made in the notes to the financial statements. If not
amended, the audit opinion on the financial statements should be qualified with an ‘except for’ disagreement. In
addition, if practicable, the auditor’s report should include the information that would have been included in the financial
statements had the requirements of IAS 24 been adhered to.
Valuation and classification of the receivable
A receivable should only be recognised if it will give rise to future economic benefit, i.e. a future cash inflow. It appears
that the receivable is long outstanding – if the amount is unlikely to be recovered then it should be written off as a bad
debt and the associated expense recognised. It is possible that assets and profits are overstated.
Although a representation has been received indicating that the amount will be paid to Pulp Co, the auditor should be
sceptical of this claim given that the same representation was given last year, and the amount was not subsequently
recovered. The $25,000 could be recoverable in the long term, in which case the receivable should be reclassified as
a non-current asset. The amount advanced to Jarvis Co could effectively be an investment rather than a short term
receivable. Correct classification on the statement of financial position (balance sheet) is crucial for the financial
statements to properly show the liquidity position of the company at the year end.
Tutorial note: Digressions into management imposing a limitation in scope by withholding evidence are irrelevant in this
case, as the scenario states that the only evidence that the auditors have asked for is a management representation.
There is no indication in the scenario that the auditors have asked for, and been refused any evidence.

参考答案：C

正确答案：
(a)(i)BenefitsofusingauditsoftwareStandardsystemsatclientThesamecomputerisedsystemsandprogramsasusedinall25branchesofTirrolCo.Thismeansthatthesameauditsoftwarecanbeusedineachlocationprovidingsignificanttimesavingscomparedtothesituationwhereclientsystemsaredifferentineachlocation.UseactualcomputerfilesnotcopiesorprintoutsUseofauditsoftwaremeansthattheTirrolCo’sactualinventoryfilescanbetestedratherthanhavingtorelyonprintoutsorscreenimages.Thelattercouldbeincorrect,byaccidentorbydeliberatemistake.Theauditfirmwillhavemoreconfidencethatthe‘real’fileshavebeentested.TestmoreitemsUseofsoftwarewillmeanthatmoreinventoryrecordscanbetested–itispossiblethatallproductlinescouldbetestedforobsolescenceratherthanasampleusingmanualtechniques.Theauditorwillthereforegainmoreevidenceandhavegreaterconfidencethatinventoryisvaluedcorrectly.CostTherelativecostofusingauditsoftwaredecreasesthemoreyearsthatsoftwareisused.Anycostoverrunsthisyearcouldbeoffsetagainsttheauditfeesinfutureyearswhentheactualexpensewillbeless.(ii)ProblemsontheauditofTirrolTimescale–sixweekreportingdeadline–auditplanningTheauditreportisduetobesignedsixweeksaftertheyearend.Thismeansthattherewillbeconsiderablepressureontheauditortocompleteauditworkwithoutcompromisingstandardsbyrushingprocedures.Thisproblemcanbeovercomebycarefulplanningoftheaudit,useofexperiencedstaffandensuringotherstaffsuchassecondpartnerreviewsarebookedwellinadvance.Timescale–sixweekreportingdeadline–softwareissuesTheauditreportisduetobesignedaboutsixweeksaftertheyearend.Thismeansthatthereislittletimetowriteandtestauditsoftware,letaloneusethesoftwareandevaluatetheresultsoftesting.Thisproblemcanbealleviatedbycarefulplanning.AccesstoTirrolCo’ssoftwareanddatafilesmustbeobtainedassoonaspossibleandworkcommencedontailoringCal&Co’ssoftwarefollowingthis.Specialistcomputerauditstaffshouldbebookedassoonaspossibletoperform.thiswork.FirstyearauditcostsTherelativecostsofanauditinthefirstyearataclienttendtobegreaterduetotheadditionalworkofascertainingclientsystems.ThismeansthatCal&Comayhavealimitedbudgettodocumentsystemsincludingcomputersystems.Thisproblemcanbealleviatedtosomeextentagainbygoodauditplanning.Themanagermustalsomonitortheauditprocesscarefully,ensuringthatanyadditionalworkcausedbytheclientnotprovidingaccesstosystemsinformationincludingcomputersystemsisidentifiedandaddedtothetotalbillingcostoftheaudit.StaffholidaysMostoftheauditworkwillbecarriedoutinJuly,whichisalsothemonthwhenmanyofCal&Costafftaketheirannualholiday.Thismeansthattherewillbeashortageofauditstaff,particularlyasauditworkforTirrolCoisbeingbookedwithlittlenotice.Theproblemcanbealleviatedbybookingstaffassoonaspossibleandthenidentifyinganyshortages.Wherenecessary,staffmaybeborrowedfromotherofficesorevendifferentcountriesonasecondmentbasiswhereshortagesareacute.Non-standardsystemsTirrolCo’scomputersoftwareisnon-standard,havingbeenwrittenspecificallyfortheorganisation.Thismeansthatmoretimewillbenecessarytounderstandthesystemthanifstandardsystemswereused.Thisproblemcanbealleviatedeitherbyobtainingdocumentationfromtheclientorbyapproachingthesoftwarehouse(withTirrolCo’spermission)toseeiftheycanassistwithprovisionofinformationondatastructuresfortheinventorysystems.ProvisionofthisinformationwilldecreasethetimetakentotailorauditsoftwareforuseinTirrolCo.IssuesoflivetestingCal&Cohasbeeninformedthatinventorysystemsmustbetestedonalivebasis.Thisincreasestheriskofaccidentalamendmentordeletionofclientdatasystemscomparedtotestingcopyfiles.Tolimitthepossibilityofdamagetoclientsystems,Cal&CocanconsiderperforminginventorytestingondayswhenTirrolCoisnotoperatinge.g.weekends.Attheworst,backupsofdatafilestakenfromthepreviousdaycanbere-installedwhenCal&Co’stestingiscomplete.ComputersystemsTheclienthas25locations,witheachlocationmaintainingitsowncomputersystem.Itispossiblethatcomputersystemsarenotcommonacrosstheclientduetoamendmentsmadeatthebranchlevel.Thisproblemcanbeovercometosomeextentbyaskingstaffateachbranchwhethersystemshavebeenamendedandfocusingauditworkonmaterialbranches.UsefulnessofauditsoftwareTheuseofauditsoftwareatTirrolCodoesappeartohavesignificantproblemsthisyear.Thismeansthateveniftheauditsoftwareisready,theremaystillbesomeriskofincorrectconclusionsbeingderivedduetolackoftesting,etc.Thisproblemcanbealleviatedbyseriouslyconsideringthepossibilityofusingamanualauditthisyear.Themanagermayneedtoinvestigatewhetheramanualauditisfeasibleandifsowhetheritcouldbecompletedwithinthenecessarytimescalewithminimalauditrisk.(b)RelianceoninternalauditdocumentationTherearetwoissuestoconsider;theabilityofinternalaudittoproducethedocumentationandtheactualaccuracyofthedocumentationitself.Theabilityoftheinternalauditdepartmenttoproducethedocumentationcanbedeterminedby:–Ensuringthatthedepartmenthasstaffwhohaveappropriatequalifications.Provisionofarelevantqualificatione.g.membershipofacomputerrelatedinstitutewouldbeappropriate.–Ensuringthatthisandsimilardocumentationisproducedusingarecognisedplanandthatthedocumentationistestedpriortouse.Theuseofdifferentstaffintheinternalauditdepartmenttoproduceandtestdocumentationwillincreaseconfidenceinitsaccuracy.–Ensuringthatthedocumentationisactuallyusedduringinternalauditworkandthatproblemswithdocumentationarenotedandinvestigatedaspartofthatwork.Beinggivenaccesstointernalauditreportsontheinventorysoftwarewillprovideappropriateevidence.Regardingtheactualdocumentation:–Reviewingthedocumentationtoensurethatitappearslogicalandthattermsandsymbolsareusedconsistentlythroughout.Thiswillprovideevidencethattheflowcharts,etcshouldbeaccurate.–Comparingthedocumentationagainstthe‘live’inventorysystemtoensureitcorrectlyreflectstheinventorysystem.Thiscomparisonwillincludetracingindividualtransactionsthroughtheinventorysystems.–UsingpartofthedocumentationtoamendCal&Co’sauditsoftware,andthenensuringthatthesoftwareprocessesinventorysystemdataaccurately.However,thisstagemaybelimitedduetotheneedtouselivefilesatTirrolCo.

正确答案：
4 Smith & Co
(a) Norman Co
The invoice is 12 months old and it appears doubtful whether the amount outstanding is recoverable. The fact that such an
old debt is unsettled indicates poor credit control by Smith & Co. Part of good practice management is to run a profitable,
cash generating audit function. The debt should not have been left outstanding for such a long period. It seems that little has
been done to secure payment since the file note was attached to the invoice in November 2007.
There is also a significant ethical issue raised. Overdue fees are a threat to objectivity and independence. Due to Norman Co
not yet paying for the 2007 year end audit, it could be perceived that the audit has been performed for free. Alternatively the
amount outstanding could be perceived as a loan to the client, creating a self-interest threat to independence.
The audit work for the year ended 28 February 2008 should not have been carried out without some investigation into the
unpaid invoice relating to the prior year audit. This also represents a self-interest threat – if fees are not collected before the
audit report is issued, an unmodified report could be seen as enhancing the prospect of securing payment. It seems that a
check has not been made to see if the prior year fee has been paid prior to the audit commencing.
It is also concerning that the audit report for the 2008 year end is about to be issued, but no invoice has been raised relating
to the work performed. To maximise cash inflow, the audit firm should invoice the client as soon as possible for work
performed.
Norman Co appears to be suffering financial distress. In this case there is a valid commercial reason why payment has not
been made – the client simply lacks cash. While this fact does not eliminate the problems noted above, it means that the
auditors can continue so long as adequate ethical safeguards are put in place, and after the monetary significance of the
amount outstanding has been evaluated.
It should also be considered whether Norman Co’s financial situation casts any doubt over the going concern of the company.
Continued cash flow problems are certainly a financial indicator of going concern problems, and if the company does not
resolve the cash flow problem then it may be unable to continue in operational existence.
Action to be taken:
– Discuss with the audit committee (if any) or those charged with governance of Norman Co:
The ethical problems raised by the non-payment of invoices, and a payment programme to secure cash payment in
stages if necessary, rather than demanding the total amount outstanding immediately.
– Notify the ethics partner of Smith & Co of the situation – the ethics partner should evaluate the ethical threat posed by
the situation and document the decision to continue to act for Norman Co.
– The documentation should include an evaluation of the monetary significance of the amount outstanding, as it will be
more difficult to justify the continuance of the audit appointment if the amount is significant.
– The ethics partner should ensure that a firm-wide policy is communicated to all audit managers requiring them to check
the payment of previous invoices before commencing new client work. This check should be documented.
– Consider an independent partner review of the working papers prepared for the 28 February 2008 audit.
– The audit working papers on going concern should be reviewed to ensure that sufficient evidence has been gathered to
support the audit opinion. Further procedures may be found to be necessary given the continued cash flow problems.
– Smith & Co have already acted to improve credit control by making a manager responsible for reviewing invoices and
monitoring subsequent cash collection. It is important that credit control procedures are quickly put into place to prevent
similar situations arising.

正确答案：A
解析：Explanation: The FTP protocol uses the TCP port 21. In the exhibit the UDP port 21 has been incorrectly added instead of the TCP port.

Incorrect answers:
B: The FTP protocol uses Port 21 not Port 138.

C: The port 21 should be added as a TCP port 21, not as a UDP port or as an IP protocol. IP is also a network protocol and not a port.

D: The FTP protocol uses TCP port 21 not port 138. IP is also a network protocol and not a port.

正确答案：

(a) Critical appraisal of the draft audit report

Type of opinion

When an auditor issues an opinion expressing that the financial statements ‘do not give a true and fair view’, this represents an adverse opinion. The paragraph explaining the modification should, therefore, be titled ‘Basis of Adverse Opinion’ rather than simply ‘Basis of Modified Opinion’.

An adverse opinion means that the auditor considers the misstatement to be material and pervasive to the financial statements of the Hopper Group. According to ISA 705 Modifications to Opinions in the Independent Auditor’s Report, pervasive matters are those which affect a substantial proportion of the financial statements or fundamentally affect the users’ understanding of the financial statements. It is unlikely that the failure to recognise contingent consideration is pervasive; the main effect would be to understate goodwill and liabilities. This would not be considered a substantial proportion of the financial statements, neither would it be fundamental to understanding the Hopper Group’s performance and position.

However, there is also some uncertainty as to whether the matter is even material. If the matter is determined to be material but not pervasive, then a qualified opinion would be appropriate on the basis of a material misstatement. If the matter is not material, then no modification would be necessary to the audit opinion.

Wording of opinion/report

The auditor’s reference to ‘the acquisition of the new subsidiary’ is too vague; the Hopper Group may have purchased a number of subsidiaries which this phrase could relate to. It is important that the auditor provides adequate description of the event and in these circumstances it would be appropriate to name the subsidiary referred to.

The auditor has not quantified the amount of the contingent element of the consideration. For the users to understand the potential implications of any necessary adjustments, they need to know how much the contingent consideration will be if it becomes payable. It is a requirement of ISA 705 that the auditor quantifies the financial effects of any misstatements, unless it is impracticable to do so.

In addition to the above point, the auditor should provide more description of the financial effects of the misstatement, including full quantification of the effect of the required adjustment to the assets, liabilities, incomes, revenues and equity of the Hopper Group.

The auditor should identify the note to the financial statements relevant to the contingent liability disclosure rather than just stating ‘in the note’. This will improve the understandability and usefulness of the contents of the audit report.

The use of the term ‘we do not feel that the treatment is correct’ is too vague and not professional. While there may be some interpretation necessary when trying to apply financial reporting standards to unique circumstances, the expression used is ambiguous and may be interpreted as some form. of disclaimer by the auditor with regard to the correct accounting treatment. The auditor should clearly explain how the treatment applied in the financial statements has departed from the requirements of the relevant standard.

Tutorial note: As an illustration to the above point, an appropriate wording would be: ‘Management has not recognised the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree, which constitutes a departure from International Financial Reporting Standards.’

The ambiguity is compounded by the use of the phrase ‘if this is the case, it would be appropriate to adjust the goodwill’. This once again suggests that the correct treatment is uncertain and perhaps open to interpretation.

If the auditor wishes to refer to a specific accounting standard they should refer to its full title. Therefore instead of referring to ‘the relevant standard’ they should refer to International Financial Reporting Standard 3 Business Combinations.

The opinion paragraph requires an appropriate heading. In this case the auditors have issued an adverse opinion and the paragraph should be headed ‘Adverse Opinion’.

As with the basis paragraph, the opinion paragraph lacks authority; suggesting that the required adjustments ‘may’ materially affect the financial statements implies that there is a degree of uncertainty. This is not the case; the amount of the contingent consideration will be disclosed in the relevant purchase agreement, so the auditor should be able to determine whether the required adjustments are material or not. Regardless, the sentence discussing whether the balance is material or not is not required in the audit report as to warrant inclusion in the report the matter must be considered material. The disclosure of the nature and financial effect of the misstatement in the basis paragraph is sufficient.

Finally, the emphasis of matter paragraph should not be included in the audit report. An emphasis of matter paragraph is only used to draw attention to an uncertainty/matter of fundamental importance which is correctly accounted for and disclosed in the financial statements. An emphasis of matter is not required in this case for the following reasons:

– Emphasis of matter is only required to highlight matters which the auditor believes are fundamental to the users’ understanding of the business. An example may be where a contingent liability exists which is so significant it could lead to the closure of the reporting entity. That is not the case with the Hopper Group; the contingent liability does not appear to be fundamental.

– Emphasis of matter is only used for matters where the auditor has obtained sufficient appropriate evidence that the matter is not materially misstated in the financial statements. If the financial statements are materially misstated, in this regard the matter would be fully disclosed by the auditor in the basis of qualified/adverse opinion paragraph and no emphasis of matter is necessary.

(b) Communication from the component auditor

The qualified opinion due to insufficient evidence may be a significant matter for the Hopper Group audit. While the possible adjustments relating to the current year may not be material to the Hopper Group, the inability to obtain sufficient appropriate evidence with regard to a material matter in Seurat Sweeteners Co’s financial statements may indicate a control deficiency which the auditor was not aware of at the planning stage and it could indicate potential problems with regard to the integrity of management, which could also indicate a potential fraud. It could also indicate an unwillingness of management to provide information, which could create problems for future audits, particularly if research and development costs increase in future years. If the group auditor suspects that any of these possibilities are true, they may need to reconsider their risk assessment and whether the audit procedures performed are still appropriate.

If the detail provided in the communication from the component auditor is insufficient, the group auditor should first discuss the matter with the component auditor to see whether any further information can be provided. The group auditor can request further working papers from the component auditor if this is necessary. However, if Seurat Sweeteners has not been able to provide sufficient appropriate evidence, it is unlikely that this will be effective.

If the discussions with the component auditor do not provide satisfactory responses to evaluate the potential impact on the Hopper Group, the group auditor may need to communicate with either the management of Seurat Sweeteners or the Hopper Group to obtain necessary clarification with regard to the matter.

Following these procedures, the group auditor needs to determine whether they have sufficient appropriate evidence to draw reasonable conclusions on the Hopper Group’s financial statements. If they believe the lack of information presents a risk of material misstatement in the group financial statements, they can request that further audit procedures be performed, either by the component auditor or by themselves.

Ultimately the group engagement partner has to evaluate the effect of the inability to obtain sufficient appropriate evidence on the audit opinion of the Hopper Group. The matter relates to research expenses totalling $1·2 million, which represents 0·2% of the profit for the year and 0·03% of the total assets of the Hopper Group. It is therefore not material to the Hopper Group’s financial statements. For this reason no modification to the audit report of the Hopper Group would be required as this does not represent a lack of sufficient appropriate evidence with regard to a matter which is material to the Group financial statements.

Although this may not have an impact on the Hopper Group audit opinion, this may be something the group auditor wishes to bring to the attention of those charged with governance. This would be particularly likely if the group auditor believed that this could indicate some form. of fraud in Seurat Sweeteners Co, a serious deficiency in financial reporting controls or if this could create problems for accepting future audits due to management’s unwillingness to provide access to accounting records.

(c) Quality control procedures prior to issuing the audit report

ISA 220 Quality Control for an Audit of Financial Statements and ISQC 1 Quality Control for Firms that Perform. Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Agreements require that an engagement quality control reviewer shall be appointed for audits of financial statements of listed entities. The audit engagement partner then discusses significant matters arising during the audit engagement with the engagement quality control reviewer.

The engagement quality control reviewer and the engagement partner should discuss the failure to recognise the contingent consideration and its impact on the auditor’s report. The engagement quality control reviewer must review the financial statements and the proposed auditor’s report, in particular focusing on the conclusions reached in formulating the auditor’s report and consideration of whether the proposed auditor’s opinion is appropriate. The audit documentation relating to the acquisition of Seurat Sweeteners Co will be carefully reviewed, and the reviewer is likely to consider whether procedures performed in relation to these balances were appropriate.

Given the listed status of the Hopper Group, any modification to the auditor’s report will be scrutinised, and the firm must be sure of any decision to modify the report, and the type of modification made. Once the engagement quality control reviewer has considered the necessity of a modification, they should consider whether a qualified or an adverse opinion is appropriate in the circumstances. This is an important issue, given that it requires judgement as to whether the matters would be material or pervasive to the financial statements.

The engagement quality control reviewer should ensure that there is adequate documentation regarding the judgements used in forming the final audit opinion, and that all necessary matters have been brought to the attention of those charged with governance.

The auditor’s report must not be signed and dated until the completion of the engagement quality control review.

Tutorial note: In the case of the Hopper Group’s audit, the lack of evidence in respect of research costs is unlikely to be discussed unless the audit engagement partner believes that the matter could be significant, for example, if they suspected the lack of evidence is being used to cover up a financial statements fraud.