(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steelcookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. Thenotes to the financial statements disclose
题目
(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steel
cookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. The
notes to the financial statements disclose the following:
‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects in
materials and workmanship under normal household use within a 10-year guarantee period. No provision
has been recognised as the amount of the obligation cannot be measured with sufficient reliability.’
(4 marks)
Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.
Required:
Identify and comment on the implications of these two matters for your auditor’s report on the financial
statements of Petrie Co for the year ended 31 March 2007.
NOTE: The mark allocation is shown against each of the matters above.
相似考题
更多“(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steelcookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. Thenotes to the financial statements disclose ”相关问题
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第1题：
(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with in
the group financial statements and how the loan to Briars should be treated in the financial statements of
Briars for the year ended 31 May 2006. (9 marks)
正确答案：(b) IAS21 ‘The Effects of Changes in Foreign Exchange Rates’ requires goodwill arising on the acquisition of a foreign operation
and fair value adjustments to acquired assets and liabilities to be treated as belonging to the foreign operation. They should
be expressed in the functional currency of the foreign operation and translated at the closing rate at each balance sheet date.
Effectively goodwill is treated as a foreign currency asset which is retranslated at the closing rate. In this case the goodwillarising on the acquisition of Briars would be treated as follows:
At 31 May 2006, the goodwill will be retranslated at 2·5 euros to the dollar to give a figure of $4·4 million. Therefore this
will be the figure for goodwill in the balance sheet and an exchange loss of $1·4 million recorded in equity (translation
reserve). The impairment of goodwill will be expensed in profit or loss to the value of $1·2 million. (The closing rate has been
used to translate the impairment; however, there may be an argument for using the average rate.)
The loan to Briars will effectively be classed as a financial liability measured at amortised cost. It is the default category for
financial liabilities that do not meet the definition of financial liabilities at fair value through profit or loss. For most entities,
most financial liabilities will fall into this category. When a financial liability is recognised initially in the balance sheet, the
liability is measured at fair value. Fair value is the amount for which a liability can be settled, between knowledgeable, willing
parties in an arm’s length transaction. In other words, fair value is an actual or estimated transaction price on the reporting
date for a transaction taking place between unrelated parties that have adequate information about the asset or liability being
measured.
Since fair value is a market transaction price, on initial recognition fair value generally is assumed to equal the amount of
consideration paid or received for the financial asset or financial liability. Accordingly, IAS39 specifies that the best evidence
of the fair value of a financial instrument at initial recognition generally is the transaction price. However for longer-term
receivables or payables that do not pay interest or pay a below-market interest, IAS39 does require measurement initially at
the present value of the cash flows to be received or paid.
Thus in Briars financial statements the following entries will be made:
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第2题：
(b) (i) Discusses the principles involved in accounting for claims made under the above warranty provision.
(6 marks)
(ii) Shows the accounting treatment for the above warranty provision under IAS37 ‘Provisions, Contingent
Liabilities and Contingent Assets’ for the year ended 31 October 2007. (3 marks)
Appropriateness of the format and presentation of the report and communication of advice. (2 marks)
正确答案：(b) Provisions – IAS37
An entity must recognise a provision under IAS37 if, and only if:
(a) a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event)
(b) it is probable (‘more likely than not’), that an outflow of resources embodying economic benefits will be required to settle
the obligation
(c) the amount can be estimated reliably
An obligating event is an event that creates a legal or constructive obligation and, therefore, results in an enterprise having
no realistic alternative but to settle the obligation. A constructive obligation arises if past practice creates a valid expectation
on the part of a third party. If it is more likely than not that no present obligation exists, the enterprise should disclose a
contingent liability, unless the possibility of an outflow of resources is remote.
The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation
at the balance sheet date, that is, the amount that an enterprise would rationally pay to settle the obligation at the balance
sheet date or to transfer it to a third party. This means provisions for large populations of events such as warranties, are
measured at a probability weighted expected value. In reaching its best estimate, the entity should take into account the risks
and uncertainties that surround the underlying events.
Expected cash outflows should be discounted to their present values, where the effect of the time value of money is material
using a risk adjusted rate (it should not reflect risks for which future cash flows have been adjusted). If some or all of the
expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be
recognised as a separate asset when, and only when, it is virtually certain that reimbursement will be received if the entity
settles the obligation. The amount recognised should not exceed the amount of the provision. In measuring a provision future
events should be considered. The provision for the warranty claim will be determined by using the expected value method.
The past event which causes the obligation is the initial sale of the product with the warranty given at that time. It would be
appropriate for the company to make a provision for the Year 1 warranty of $280,000 and Year 2 warranty of $350,000,
which represents the best estimate of the obligation (see Appendix 2). Only if the insurance company have validated the
counter claim will Macaljoy be able to recognise the asset and income. Recovery has to be virtually certain. If it is virtually
certain, then Macaljoy may be able to recognise the asset. Generally contingent assets are never recognised, but disclosed
where an inflow of economic benefits is probable.
The company could discount the provision if it was considered that the time value of money was material. The majority of
provisions will reverse in the short term (within two years) and, therefore, the effects of discounting are likely to be immaterial.
In this case, using the risk adjusted rate (IAS37), the provision would be reduced to $269,000 in Year 1 and $323,000 in
Year 2. The company will have to determine whether this is material.
Appendix 1
The accounting for the defined benefit plan is as follows:
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第3题：
(ii) Illustrate the benefit of revising the corporate structure by calculating the corporation tax (CT) payable
for the year ended 31 March 2006, on the assumptions that:
(1) no action is taken; and
(2) an amended structure as recommended in (i) above is implemented from 1 June 2005. (3 marks)
正确答案：
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第4题：
(ii) Calculate the corporation tax (CT) payable by Tay Limited for the year ended 31 March 2006, taking
advantage of all available reliefs. (3 marks)
正确答案：
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第5题：
(ii) Explain how the inclusion of rental income in Coral’s UK income tax computation could affect the
income tax due on her dividend income. (2 marks)
You are not required to prepare calculations for part (b) of this question.
Note: you should assume that the tax rates and allowances for the tax year 2006/07 and for the financial year to
31 March 2007 will continue to apply for the foreseeable future.
正确答案：
(ii) The effect of taxable rental income on the tax due on Coral’s dividend income
Remitting rental income to the UK may cause some of Coral’s dividend income currently falling within the basic rate
band to fall within the higher rate band. The effect of this would be to increase the tax on the gross dividend income
from 0% (10% less the 10% tax credit) to 221/2% (321/2% less 10%).
Tutorial note
It would be equally acceptable to state that the effective rate of tax on the dividend income would increase from 0%
to 25%. -
第6题：
(b) On 1 April 2004 Volcan introduced a ‘reward scheme’ for its customers. The main elements of the reward
scheme include the awarding of a ‘store point’ to customers’ loyalty cards for every $1 spent, with extra points
being given for the purchase of each week’s special offers. Customers who hold a loyalty card can convert their
points into cash discounts against future purchases on the basis of $1 per 100 points. (6 marks)
Required:
For each of the above 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 Volcan for the year ended
31 March 2005.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(b) Reward scheme
(i) Matters
■ If the entire year’s revenue ($303m) attracted store points then the cost of the reward scheme in the year is at
most $3·03m. This represents 1% of revenue, which is material to the income statement and very material
(31·9%) to profit before tax (PBT).
■ The proportion of customers who register for loyalty cards and the percentage of revenue (and profit) which they
represent (which may vary from store to store depending on customer profile).
■ In accordance with the assumption of accruals, which underlies the preparation and presentation of financial
statements (The Framework/IAS 1 ‘Presentation of Financial Statements’), the expense and liability should be
recognised as revenue is earned. (It is of the nature of a discount.)
■ Any restrictions on the terms for converting points (e.g. whether they expire if not used within a specified time).
■ To the extent that points have been awarded but not redeemed at 31 March 2005, Volcan will have a liability at
the balance sheet date.
■ Agree the total balance due to customers at the year end under the reward scheme to the sum of the points on
individual customer reward cards.
■ The proportion of reward points awarded which are not expected to be claimed (e.g. the ‘take up’ of points awarded
may be only 80%, say).
■ Whether reward points are valued at selling price or cost. For example, if the average gross profit margin is 20%,
one point is equivalent to 0·8 cents of goods at cost.
(ii) Audit evidence
■ New/updated systems documentation explaining how:
– loyalty cards (and numbers) are issued to customers;
– points earned are recorded at the point of sale; and
– points are later redeemed on subsequent purchases.
■ Walk-through tests (e.g. on registering customer applications and issuing loyalty cards, awarding of points on
special offer items).
■ Tests of controls supporting the extent to which audit reliance is placed on the accounting and internal control
system. In particular, how points are extracted from the electronic tills (cash registers) and summarised into the
weekly/monthly financial data for each store which underlies the financial statements.
■ Analytical procedures on the value of points awarded by store per month with explanations of variations (‘variation
analysis’). For example, similar proportions (not exceeding 1% of revenue) of points in each month might be
expected by store – possibly increasing following any promotion of the ‘loyalty’ scheme.
Tutorial note: Within a close community, for example, a high proportion of customers might be expected to sign
up for the reward scheme. However, in big cities, where a large proportion of the customers might be transitory
(e.g. tourists or other visitors) the proportion may be much lower.
■ Tests of detail on a sample of transactions with customers undertaken at store visits. For example, for a sample of
copy till receipts:
– check the arithmetic accuracy of points awarded (1 per $1 spent + special offers);
– agree points awarded for special offers to that week’s special offers;
– for cash discounts taken confirm the conversion of points is against the opening balance of points awarded
(not against purchases just made). -
第7题：
3 You are the manager responsible for the audit of Keffler Co, a private limited company engaged in the manufacture of
plastic products. The draft financial statements for the year ended 31 March 2006 show revenue of $47·4 million
(2005 – $43·9 million), profit before taxation of $2 million (2005 – $2·4 million) and total assets of $33·8 million
(2005 – $25·7 million).
The following issues arising during the final audit have been noted on a schedule of points for your attention:
(a) In April 2005, Keffler bought the right to use a landfill site for a period of 15 years for $1·1 million. Keffler
expects that the amount of waste that it will need to dump will increase annually and that the site will be
completely filled after just ten years. Keffler has charged the following amounts to the income statement for the
year to 31 March 2006:
– $20,000 licence amortisation calculated on a sum-of-digits basis to increase the charge over the useful life
of the site; and
– $100,000 annual provision for restoring the land in 15 years’ time. (9 marks)
Required:
For each of the above 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 Keffler Co for the year ended
31 March 2006.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
3 KEFFLER CO
Tutorial note: None of the issues have any bearing on revenue. Therefore any materiality calculations assessed on revenue are
inappropriate and will not be awarded marks.
(a) Landfill site
(i) Matters
■ $1·1m cost of the right represents 3·3% of total assets and is therefore material.
■ The right should be amortised over its useful life, that is just 10 years, rather than the 15-year period for which
the right has been granted.
Tutorial note: Recalculation on the stated basis (see audit evidence) shows that a 10-year amortisation has been
correctly used.
■ The amortisation charge represents 1% of profit before tax (PBT) and is not material.
■ The amortisation method used should reflect the pattern in which the future economic benefits of the right are
expected to be consumed by Keffler. If that pattern cannot be determined reliably, the straight-line method must
be used (IAS 38 ‘Intangible Assets’).
■ Using an increasing sum-of-digits will ‘end-load’ the amortisation charge (i.e. least charge in the first year, highest
charge in the last year). However, according to IAS 38 there is rarely, if ever, persuasive evidence to support an
amortisation method that results in accumulated amortisation lower than that under the straight-line method.
Tutorial note: Over the first half of the asset’s life, depreciation will be lower than under the straight-line basis
(and higher over the second half of the asset’s life).
■ On a straight line basis the annual amortisation charge would be $0·11m, an increase of $90,000. Although this
difference is just below materiality (4·5% PBT) the cumulative effect (of undercharging amortisation) will become
material.
■ Also, when account is taken of the understatement of cost (see below), the undercharging of amortisation will be
material.
■ The sum-of-digits method might be suitable as an approximation to the unit-of-production method if Keffler has
evidence to show that use of the landfill site will increase annually.
■ However, in the absence of such evidence, the audit opinion should be qualified ‘except for’ disagreement with the
amortisation method (resulting in intangible asset overstatement/amortisation expense understatement).
■ The annual restoration provision represents 5% of PBT and 0·3% of total assets. Although this is only borderline
material (in terms of profit), there will be a cumulative impact.
■ Annual provisioning is contrary to IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’.
■ The estimate of the future restoration cost is (presumably) $1·5m (i.e. $0·1 × 15). The present value of this
amount should have been provided in full in the current year and included in the cost of the right.
■ Thus the amortisation being charged on the cost of the right (including the restoration cost) is currently understated
(on any basis).
Tutorial note: A 15-year discount factor at 10% (say) is 0·239. $1·5m × 0·239 is approximately $0·36m. The
resulting present value (of the future cost) would be added to the cost of the right. Amortisation over 10 years
on a straight-line basis would then be increased by $36,000, increasing the difference between amortisation
charged and that which should be charged. The lower the discount rate, the greater the understatement of
amortisation expense.
Total amount expensed ($120k) is less than what should have been expensed (say $146k amortisation + $36k
unwinding of discount). However, this is not material.
■ Whether Keffler will wait until the right is about to expire before restoring the land or might restore earlier (if the
site is completely filled in 10 years).
(ii) Audit evidence
■ Written agreement for purchase of right and contractual terms therein (e.g. to make restoration in 15 years’ time).
■ Cash book/bank statement entries in April 2005 for $1·1m payment.
■ Physical inspection of the landfill site to confirm Keffler’s use of it.
■ Annual dump budget/projection over next 10 years and comparison with sum-of-digits proportions.
■ Amount actually dumped in the year (per dump records) compared with budget and as a percentage/proportion of
the total available.
■ Recalculation of current year’s amortisation based on sum-of-digits. That is, $1·1m ÷ 55 = $20,000.
Tutorial note: The sum-of-digits from 1 to 10 may be calculated long-hand or using the formula n(n+1)/2 i.e.
(10 × 11)/2 = 55.
■ The basis of the calculation of the estimated restoration costs and principal assumptions made.
■ If estimated by a quantity surveyor/other expert then a copy of the expert’s report.
■ Written management representation confirming the planned timing of the restoration in 15 years (or sooner). -
第8题：
(b) You are the audit manager of Johnston Co, a private company. The draft consolidated financial statements for
the year ended 31 March 2006 show profit before taxation of $10·5 million (2005 – $9·4 million) and total
assets of $55·2 million (2005 – $50·7 million).
Your firm was appointed auditor of Tiltman Co when Johnston Co acquired all the shares of Tiltman Co in March
2006. Tiltman’s draft financial statements for the year ended 31 March 2006 show profit before taxation of
$0·7 million (2005 – $1·7 million) and total assets of $16·1 million (2005 – $16·6 million). The auditor’s
report on the financial statements for the year ended 31 March 2005 was unmodified.
You are currently reviewing two matters that have been left for your attention on the audit working paper files for
the year ended 31 March 2006:
(i) In December 2004 Tiltman installed a new computer system that properly quantified an overvaluation of
inventory amounting to $2·7 million. This is being written off over three years.
(ii) In May 2006, Tiltman’s head office was relocated to Johnston’s premises as part of a restructuring.
Provisions for the resulting redundancies and non-cancellable lease payments amounting to $2·3 million
have been made in the financial statements of Tiltman for the year ended 31 March 2006.
Required:
Identify and comment on the implications of these two matters for your auditor’s reports on the financial
statements of Johnston Co and Tiltman Co for the year ended 31 March 2006. (10 marks)
正确答案：
(b) Tiltman Co
Tiltman’s total assets at 31 March 2006 represent 29% (16·1/55·2 × 100) of Johnston’s total assets. The subsidiary is
therefore material to Johnston’s consolidated financial statements.
Tutorial note: Tiltman’s profit for the year is not relevant as the acquisition took place just before the year end and will
therefore have no impact on the consolidated income statement. Calculations of the effect on consolidated profit before
taxation are therefore inappropriate and will not be awarded marks.
(i) Inventory overvaluation
This should have been written off to the income statement in the year to 31 March 2005 and not spread over three
years (contrary to IAS 2 ‘Inventories’).
At 31 March 2006 inventory is overvalued by $0·9m. This represents all Tiltmans’s profit for the year and 5·6% of
total assets and is material. At 31 March 2005 inventory was materially overvalued by $1·8m ($1·7m reported profit
should have been a $0·1m loss).
Tutorial note: 1/3 of the overvaluation was written off in the prior period (i.e. year to 31 March 2005) instead of $2·7m.
That the prior period’s auditor’s report was unmodified means that the previous auditor concurred with an incorrect
accounting treatment (or otherwise gave an inappropriate audit opinion).
As the matter is material a prior period adjustment is required (IAS 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’). $1·8m should be written off against opening reserves (i.e. restated as at 1 April 2005).
(ii) Restructuring provision
$2·3m expense has been charged to Tiltman’s profit and loss in arriving at a draft profit of $0·7m. This is very material.
(The provision represents 14·3% of Tiltman’s total assets and is material to the balance sheet date also.)
The provision for redundancies and onerous contracts should not have been made for the year ended 31 March 2006
unless there was a constructive obligation at the balance sheet date (IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’). So, unless the main features of the restructuring plan had been announced to those affected (i.e.
redundancy notifications issued to employees), the provision should be reversed. However, it should then be disclosed
as a non-adjusting post balance sheet event (IAS 10 ‘Events After the Balance Sheet Date’).
Given the short time (less than one month) between acquisition and the balance sheet it is very possible that a
constructive obligation does not arise at the balance sheet date. The relocation in May was only part of a restructuring
(and could be the first evidence that Johnston’s management has started to implement a restructuring plan).
There is a risk that goodwill on consolidation of Tiltman may be overstated in Johnston’s consolidated financial
statements. To avoid the $2·3 expense having a significant effect on post-acquisition profit (which may be negligible
due to the short time between acquisition and year end), Johnston may have recognised it as a liability in the
determination of goodwill on acquisition.
However, the execution of Tiltman’s restructuring plan, though made for the year ended 31 March 2006, was conditional
upon its acquisition by Johnston. It does not therefore represent, immediately before the business combination, a
present obligation of Johnston. Nor is it a contingent liability of Johnston immediately before the combination. Therefore
Johnston cannot recognise a liability for Tiltman’s restructuring plans as part of allocating the cost of the combination
(IFRS 3 ‘Business Combinations’).
Tiltman’s auditor’s report
The following adjustments are required to the financial statements:
■ restructuring provision, $2·3m, eliminated;
■ adequate disclosure of relocation as a non-adjusting post balance sheet event;
■ current period inventory written down by $0·9m;
■ prior period inventory (and reserves) written down by $1·8m.
Profit for the year to 31 March 2006 should be $3·9m ($0·7 + $0·9 + $2·3).
If all these adjustments are made the auditor’s report should be unmodified. Otherwise, the auditor’s report should be
qualified ‘except for’ on grounds of disagreement. If none of the adjustments are made, the qualification should still be
‘except for’ as the matters are not pervasive.
Johnston’s auditor’s report
If Tiltman’s auditor’s report is unmodified (because the required adjustments are made) the auditor’s report of Johnston
should be similarly unmodified. As Tiltman is wholly-owned by Johnston there should be no problem getting the
adjustments made.
If no adjustments were made in Tiltman’s financial statements, adjustments could be made on consolidation, if
necessary, to avoid modification of the auditor’s report on Johnston’s financial statements.
The effect of these adjustments on Tiltman’s net assets is an increase of $1·4m. Goodwill arising on consolidation (if
any) would be reduced by $1·4m. The reduction in consolidated total assets required ($0·9m + $1·4m) is therefore
the same as the reduction in consolidated total liabilities (i.e. $2·3m). $2·3m is material (4·2% consolidated total
assets). If Tiltman’s financial statements are not adjusted and no adjustments are made on consolidation, the
consolidated financial position (balance sheet) should be qualified ‘except for’. The results of operations (i.e. profit for
the period) should be unqualified (if permitted in the jurisdiction in which Johnston reports).
Adjustment in respect of the inventory valuation may not be required as Johnston should have consolidated inventory
at fair value on acquisition. In this case, consolidated total liabilities should be reduced by $2·3m and goodwill arising
on consolidation (if any) reduced by $2·3m.
Tutorial note: The effect of any possible goodwill impairment has been ignored as the subsidiary has only just been
acquired and the balance sheet date is very close to the date of acquisition. -
第9题：
3 You are the manager responsible for the audit of Lamont Co. The company’s principal activity is wholesaling frozen
fish. The draft consolidated financial statements for the year ended 31 March 2007 show revenue of $67·0 million
(2006 – $62·3 million), profit before taxation of $11·9 million (2006 – $14·2 million) and total assets of
$48·0 million (2006 – $36·4 million).
The following issues arising during the final audit have been noted on a schedule of points for your attention:
(a) In early 2007 a chemical leakage from refrigeration units owned by Lamont caused contamination of some of its
property. Lamont has incurred $0·3 million in clean up costs, $0·6 million in modernisation of the units to
prevent future leakage and a $30,000 fine to a regulatory agency. Apart from the fine, which has been expensed,
these costs have been capitalised as improvements. (7 marks)
Required:
For each of the above 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 Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
3 LAMONT CO
(a) Chemical leakage
(i) Matters
■ $30,000 fine is very immaterial (just 1/4% profit before tax). This is revenue expenditure and it is correct that it
has been expensed to the income statement.
■ $0·3 million represents 0·6% total assets and 2·5% profit before tax and is not material on its own. $0·6 million
represents 1·2% total assets and 5% profit before tax and is therefore material to the financial statements.
■ The $0·3 million clean-up costs should not have been capitalised as the condition of the property is not improved
as compared with its condition before the leakage occurred. Although not material in isolation this amount should
be adjusted for and expensed, thereby reducing the aggregate of uncorrected misstatements.
■ It may be correct that $0·6 million incurred in modernising the refrigeration units should be capitalised as a major
overhaul (IAS 16 Property, Plant and Equipment). However, any parts scrapped as a result of the modernisation
should be treated as disposals (i.e. written off to the income statement).
■ The carrying amount of the refrigeration units at 31 March 2007, including the $0·6 million for modernisation,
should not exceed recoverable amount (i.e. the higher of value in use and fair value less costs to sell). If it does,
an allowance for the impairment loss arising must be recognised in accordance with IAS 36 Impairment of Assets.
(ii) Audit evidence
■ A breakdown/analysis of costs incurred on the clean-up and modernisation amounting to $0·3 million and
$0·6 million respectively.
■ Agreement of largest amounts to invoices from suppliers/consultants/sub-contractors, etc and settlement thereof
traced from the cash book to the bank statement.
■ Physical inspection of the refrigeration units to confirm their modernisation and that they are in working order. (Do
they contain frozen fish?)
■ Sample of components selected from the non-current asset register traced to the refrigeration units and inspected
to ensure continuing existence.
■ $30,000 penalty notice from the regulatory agency and corresponding cash book payment/payment per the bank
statement.
■ Written management representation that there are no further penalties that should be provided for or disclosed other
than the $30,000 that has been accounted for. -
第10题：
(c) Lamont owns a residential apartment above its head office. Until 31 December 2006 it was let for $3,000 a
month. Since 1 January 2007 it has been occupied rent-free by the senior sales executive. (6 marks)
Required:
For each of the above 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 Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(c) Rent-free accommodation
(i) Matters
■ The senior sales executive is a member of Lamont’s key management personnel and is therefore a related party.
■ The occupation of Lamont’s residential apartment by the senior sales executive is therefore a related party
transaction, even though no price is charged (IAS 24 Related Party Disclosures).
■ Related party transactions are material by nature and information about them should be disclosed so that users of
financial statements understand the potential effect of related party relationships on the financial statements.
■ The provision of ‘housing’ is a non-monetary benefit that should be included in the disclosure of key management
personnel compensation (within the category of short-term employee benefits).
■ The financial statements for the year ended 31 March 2007 should disclose the arrangement for providing the
senior sales executive with rent-free accommodation and its fair value (i.e. $3,000 per month).
Tutorial note: Since no price is charged for the transaction, rote-learned disclosures such as ‘the amount of outstanding
balances’ and ‘expense recognised in respect of bad debts’ are irrelevant.
(ii) Audit evidence
■ Physical inspection of the apartment to confirm that it is occupied.
■ Written representation from the senior sales executive that he is occupying the apartment free of charge.
■ Written representation from the management board confirming that there are no related party transactions requiring
disclosure other than those that have been disclosed.
■ Inspection of the lease agreement with (or payments received from) the previous tenant to confirm the $3,000
monthly rental value. -
第11题：
The following trial balance relates to Sandown at 30 September 2009:
The following notes are relevant:
(i) Sandown’s revenue includes $16 million for goods sold to Pending on 1 October 2008. The terms of the sale are that Sandown will incur ongoing service and support costs of $1·2 million per annum for three years after the sale. Sandown normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.
(ii) Administrative expenses include an equity dividend of 4·8 cents per share paid during the year.
(iii) The 5% convertible loan note was issued for proceeds of $20 million on 1 October 2007. It has an effective interest rate of 8% due to the value of its conversion option.
(iv) During the year Sandown sold an available-for-sale investment for $11 million. At the date of sale it had a
carrying amount of $8·8 million and had originally cost $7 million. Sandown has recorded the disposal of the
investment. The remaining available-for-sale investments (the $26·5 million in the trial balance) have a fair value of $29 million at 30 September 2009. The other reserve in the trial balance represents the net increase in the value of the available-for-sale investments as at 1 October 2008. Ignore deferred tax on these transactions.
(v) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2008. The directors have estimated the provision for income tax for the year ended 30 September 2009 at $16·2 million. At 30 September 2009 the carrying amounts of Sandown’s net assets were $13 million in excess of their tax base. The income tax rate of Sandown is 30%.
(vi) Non-current assets:
The freehold property has a land element of $13 million. The building element is being depreciated on a
straight-line basis.
Plant and equipment is depreciated at 40% per annum using the reducing balance method.
Sandown’s brand in the trial balance relates to a product line that received bad publicity during the year which led to falling sales revenues. An impairment review was conducted on 1 April 2009 which concluded that, based on estimated future sales, the brand had a value in use of $12 million and a remaining life of only three years.
However, on the same date as the impairment review, Sandown received an offer to purchase the brand for
$15 million. Prior to the impairment review, it was being depreciated using the straight-line method over a
10-year life.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September
2009. Depreciation, amortisation and impairment charges are all charged to cost of sales.
Required:
(a) Prepare the statement of comprehensive income for Sandown for the year ended 30 September 2009.
(13 marks)
(b) Prepare the statement of financial position of Sandown as at 30 September 2009. (12 marks)
Notes to the financial statements are not required.
A statement of changes in equity is not required.
正确答案：
(i)IAS18Revenuerequiresthatwheresalesrevenueincludesanamountforaftersalesservicingandsupportcoststhenaproportionoftherevenueshouldbedeferred.Theamountdeferredshouldcoverthecostandareasonableprofit(inthiscaseagrossprofitof40%)ontheservices.Astheservicingandsupportisforthreeyearsandthedateofthesalewas1October2008,revenuerelatingtotwoyears’servicingandsupportprovisionmustbedeferred:($1·2millionx2/0·6)=$4million.Thisisshownas$2millioninbothcurrentandnon-currentliabilities. -
第12题：
单选题The stainless steel bars are painted by（）.Alot
Blots
Ca lot
Dthe lots
正确答案： A解析： 暂无解析 -
第13题：
(c) At 1 June 2006, Router held a 25% shareholding in a film distribution company, Wireless, a public limited
company. On 1 January 2007, Router sold a 15% holding in Wireless thus reducing its investment to a 10%
holding. Router no longer exercises significant influence over Wireless. Before the sale of the shares the net asset
value of Wireless on 1 January 2007 was $200 million and goodwill relating to the acquisition of Wireless was
$5 million. Router received $40 million for its sale of the 15% holding in Wireless. At 1 January 2007, the fair
value of the remaining investment in Wireless was $23 million and at 31 May 2007 the fair value was
$26 million. (6 marks)
Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.
正确答案：
(c) The investment in Wireless is currently accounted for using the equity method of accounting under IAS28 ‘Investments in
Associates’. On the sale of a 15% holding, the investment in Wireless will be accounted for in accordance with IAS39. Router
should recognise a gain on the sale of the holding in Wireless of $7 million (Working 1). The gain comprises the following:
(i) the difference between the sale proceeds and the proportion of the net assets sold and
(ii) the goodwill disposed of.
The total gain is shown in the income statement.
The remaining 10 per cent investment will be classified as an ‘available for sale’ financial asset or at ‘fair value through profit
or loss’ financial asset. Changes in fair value for these categories are reported in equity or in the income statement respectively.
At 1 January 2007, the investment will be recorded at fair value and a gain of $1 million $(23 – 22) recorded. At 31 May
2007 a further gain of $(26 – 23) million, i.e. $3 million will be recorded. In order for the investment to be categorised as
at fair value through profit or loss, certain conditions have to be fulfilled. An entity may use this designation when doing so
results in more relevant information by eliminating or significantly reducing a measurement or recognition inconsistency (an
‘accounting mismatch’) or where a group of financial assets and/or financial liabilities is managed and its performance is
evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information
about the assets and/ or liabilities is provided internally to the entity’s key management personnel.
-
第14题：
2 The draft financial statements of Rampion, a limited liability company, for the year ended 31 December 2005
included the following figures:
$
Profit 684,000
Closing inventory 116,800
Trade receivables 248,000
Allowance for receivables 10,000
No adjustments have yet been made for the following matters:
(1) The company’s inventory count was carried out on 3 January 2006 leading to the figure shown above. Sales
between the close of business on 31 December 2005 and the inventory count totalled $36,000. There were no
deliveries from suppliers in that period. The company fixes selling prices to produce a 40% gross profit on sales.
The $36,000 sales were included in the sales records in January 2006.
(2) $10,000 of goods supplied on sale or return terms in December 2005 have been included as sales and
receivables. They had cost $6,000. On 10 January 2006 the customer returned the goods in good condition.
(3) Goods included in inventory at cost $18,000 were sold in January 2006 for $13,500. Selling expenses were
$500.
(4) $8,000 of trade receivables are to be written off.
(5) The allowance for receivables is to be adjusted to the equivalent of 5% of the trade receivables after allowing for
the above matters, based on past experience.
Required:
(a) Prepare a statement showing the effect of the adjustments on the company’s net profit for the year ended
31 December 2005. (5 marks)
正确答案：
-
第15题：
(ii) Assuming the new structure is implemented with effect from 1 August 2006, calculate the level of
management charge that should be made by Bold plc to Linden Limited for the year ended 31 July
2007, so as to minimise the group’s overall corporation tax (CT) liability for that year. (2 marks)
正确答案：
(ii) For the year ended 31 July 2007, there will be two associated companies in the group. Bold plc will count as an
associated company as it is not dormant throughout the period in question. As a result, the corporation tax limits will be
divided by two (i.e. the number of associates) giving an upper limit of ￡750,000 (￡1·5 million/2). As Linden Limited
is anticipated to make profits of ￡1·4 million in the year to 31 July 2007 it will pay corporation tax at the rate of 30%.
Bold plc can earn trading profits up to ￡150,000 (￡300,000/2) and pay tax at the rate of 19%. It will therefore
minimise the group’s corporation tax liability if maximum use is made of this small companies rate band, as it will save
￡16,500 (150,000 x (30% – 19%)) of corporation tax for the year to 31 July 2007. Bold plc should therefore make
a management charge of sufficient size to give it profits for that year equal to ￡150,000.
While the transfer pricing legislation no longer applies to small and medium sized enterprises, Bold plc should
nevertheless ensure that there is evidence to support the actual charge made in terms of the services provided. -
第16题：
(b) Explain why making sales of Sabals in North America will have no effect on Nikau Ltd’s ability to recover its
input tax. (3 marks)
Notes: – you should assume that the corporation tax rates and allowances for the financial year to 31 March 2007
will continue to apply for the foreseeable future.
– you should ignore indexation allowance.
正确答案：
(b) Recoverability of input tax
Sales by Nikau Ltd of its existing products are subject to UK VAT at 17·5% because it is selling to domestic customers who
will not be registered for VAT. Accordingly, at present, Nikau Ltd can recover all of its input tax.
Sales to customers in North America will be zero rated because the goods are being exported from the EU. Zero rated supplies
are classified as taxable for the purposes of VAT and therefore Nikau Ltd will continue to be able to recover all of its input tax. -
第17题：
(c) During the year Albreda paid $0·1 million (2004 – $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.
(5 marks)
Required:
For each of the above 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 2005.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(c) Fines and penalties
(i) Matters
■ $0·1 million represents 5·6% of profit before tax and is therefore material. However, profit has fallen, and
compared with prior year profit it is less than 5%. So ‘borderline’ material in quantitative terms.
■ Prior year amount was three times as much and represented 13·6% of profit before tax.
■ Even though the payments may be regarded as material ‘by nature’ separate disclosure may not be necessary if,
for example, there are no external shareholders.
■ Treatment (inclusion in cost of sales) should be consistent with prior year (‘The Framework’/IAS 1 ‘Presentation of
Financial Statements’).
■ The reason for the fall in expense. For example, whether due to an improvement in meeting health and safety
regulations and/or incomplete recording of liabilities (understatement).
■ The reason(s) for the breaches. For example, Albreda may have had difficulty implementing new guidelines in
response to stricter regulations.
■ Whether expenditure has been adjusted for in the income tax computation (as disallowed for tax purposes).
■ Management’s attitude to health and safety issues (e.g. if it regards breaches as an acceptable operational practice
or cheaper than compliance).
■ Any references to health and safety issues in other information in documents containing audited financial
statements that might conflict with Albreda incurring these costs.
■ Any cost savings resulting from breaches of health and safety regulations would result in Albreda possessing
proceeds of its own crime which may be a money laundering offence.
(ii) Audit evidence
■ A schedule of amounts paid totalling $0·1 million with larger amounts being agreed to the cash book/bank
statements.
■ Review/comparison of current year schedule against prior year for any apparent omissions.
■ Review of after-date cash book payments and correspondence with relevant health and safety regulators (e.g. local
authorities) for liabilities incurred before 30 September 2005.
■ Notes in the prior year financial statements confirming consistency, or otherwise, of the lack of separate disclosure.
■ A ‘signed off’ review of ‘other information’ (i.e. directors’ report, chairman’s statement, etc).
■ Written management representation that there are no fines/penalties other than those which have been reflected in
the financial statements. -
第18题：
(b) You are an audit manager with specific responsibility for reviewing other information in documents containing
audited financial statements before your firm’s auditor’s report is signed. The financial statements of Hegas, a
privately-owned civil engineering company, show total assets of $120 million, revenue of $261 million, and profit
before tax of $9·2 million for the year ended 31 March 2005. Your review of the Annual Report has revealed
the following:
(i) The statement of changes in equity includes $4·5 million under a separate heading of ‘miscellaneous item’
which is described as ‘other difference not recognized in income’. There is no further reference to this
amount or ‘other difference’ elsewhere in the financial statements. However, the Management Report, which
is required by statute, is not audited. It discloses that ‘changes in shareholders’ equity not recognized in
income includes $4·5 million arising on the revaluation of investment properties’.
The notes to the financial statements state that the company has implemented IAS 40 ‘Investment Property’
for the first time in the year to 31 March 2005 and also that ‘the adoption of this standard did not have a
significant impact on Hegas’s financial position or its results of operations during 2005’.
(ii) The chairman’s statement asserts ‘Hegas has now achieved a position as one of the world’s largest
generators of hydro-electricity, with a dedicated commitment to accountable ethical professionalism’. Audit
working papers show that 14% of revenue was derived from hydro-electricity (2004: 12%). Publicly
available information shows that there are seven international suppliers of hydro-electricity in Africa alone,
which are all at least three times the size of Hegas in terms of both annual turnover and population supplied.
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Hegas for the year ended 31 March 2005. (10 marks)
正确答案：
(b) Implications for the auditor’s report
(i) Management Report
■ $4·5 million represents 3·75% of total assets, 1·7% of revenue and 48·9% profit before tax. As this is material
by any criteria (exceeding all of 2% of total assets, 1/2% revenue and 5% PBT), the specific disclosure requirements
of IASs need to be met (IAS 1 ‘Presentation of Financial Statements’).
■ The Management Report discloses the amount and the reason for a material change in equity whereas the financial
statements do not show the reason for the change and suggest that it is immaterial. As the increase in equity
attributable to this adjustment is nearly half as much as that attributable to PBT there is a material inconsistency
between the Management Report and the audited financial statements.
■ Amendment to the Management Report is not required.
Tutorial note: Marks will be awarded for arguing, alternatively, that the Management Report disclosure needs to
be amended to clarify that the revaluation arises from the first time implementation.
■ Amendment to the financial statements is required because the disclosure is:
– incorrect – as, on first adoption of IAS 40, the fair value adjustment should be against the opening balance
of retained earnings; and
– inadequate – because it is being ‘supplemented’ by additional disclosure in a document which is not within
the scope of the audit of financial statements.
■ Whilst it is true that the adoption of IAS 40 did not have a significant impact on results of operations, Hegas’s
financial position has increased by nearly 4% in respect of the revaluation (to fair value) of just one asset category
(investment properties). As this is significant, the statement in the notes should be redrafted.
■ If the financial statements are not amended, the auditor’s report should be qualified ‘except for’ on grounds of
disagreement (non-compliance with IAS 40) as the matter is material but not pervasive. Additional disclosure
should also be given (e.g. that the ‘other difference’ is a fair value adjustment).
■ However, it is likely that when faced with the prospect of a qualified auditor’s report Hegas’s management will
rectify the financial statements so that an unmodified auditor’s report can be issued.
Tutorial note: Marks will be awarded for other relevant points e.g. citing IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’.
(ii) Chairman’s statement
Tutorial note: Hegas is privately-owned therefore IAS 14 ‘Segment Reporting’ does not apply and the proportion of
revenue attributable to hydro-electricity will not be required to be disclosed in the financial statements. However, credit
will be awarded for discussing the implications for the auditor’s report if it is regarded as a material inconsistency on
the assumption that segment revenue (or similar) is reported in the financial statements.
■ The assertion in the chairman’s statement, which does not fall within the scope of the audit of the financial
statements, claims two things, namely that the company:
(1) is ‘one of the world’s largest generators of hydro-electricity’; and
(2) has ‘a dedicated commitment to accountable ethical professionalism’.
■ To the extent that this information does not relate to matters disclosed in the financial statements it may give rise
to a material misstatement of fact. In particular, the first statement presents a misleading impression of the
company’s size. In misleading a user of the financial statements with this statement, the second statement is not
true (as it is not ethical or professional to mislead the reader and potentially undermine the credibility of the
financial statements).
■ The first statement is a material misstatement of fact because, for example:
– the company is privately-owned, and publicly-owned international/multi-nationals are larger;
– the company’s main activity is civil engineering not electricity generation (only 14% of revenue is derived from
HEP);
– as the company ranks at best eighth against African companies alone it ranks much lower globally.
■ Hegas should be asked to reconsider the wording of the chairman’s statement (i.e. removing these assertions) and
consult, as necessary, the company’s legal advisor.
■ If the statement is not changed there will be no grounds for qualification of the opinion on the audited financial
statements. The audit firm should therefore take legal advice on how the matter should be reported.
■ However, an emphasis of matter paragraph may be used to report on matters other than those affecting the audited
financial statements. For example, to explain the misstatement of fact if management refuses to make the
amendment.
Tutorial note: Marks will also be awarded for relevant comments about the chairman’s statement being perceived by
many readers to be subject to audit and therefore that the unfounded statement might undermine the credibility of the
financial statements. Shareholders tend to rely on the chairman’s statement, even though it is not regulated or audited,
because modern financial statements are so complex. -
第19题：
(c) In April 2006, Keffler was banned by the local government from emptying waste water into a river because the
water did not meet minimum standards of cleanliness. Keffler has made a provision of $0·9 million for the
technological upgrading of its water purifying process and included $45,000 for the penalties imposed in ‘other
provisions’. (5 marks)
Required:
For each of the above 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 Keffler Co for the year ended
31 March 2006.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(c) Ban on emptying waste water
(i) Matter
■ $0·9m provision for upgrading the process represents 45% PBT and is very material. This provision is also
material to the balance sheet (2·7% of total assets).
■ The provision for penalties is immaterial (2·2% PBT and 0·1% total assets).
■ The ban is an adjusting post balance sheet event in respect of the penalties (IAS 10). It provides evidence that at
the balance sheet date Keffler was in contravention of local government standards. Therefore it is correct (in
accordance with IAS 37) that a provision has been made for the penalties. As the matter is not material inclusion
in ‘other provisions’ is appropriate.
■ However, even if Keffler has a legal obligation to meet minimum standards, there is no obligation for upgrading the
purifying process at 31 March 2006 and the $0·9m provision should be written back.
■ If the provision for upgrading is not written back the audit opinion should be qualified ‘except for’ (disagreement).
■ Keffler does not even have a contingent liability for upgrading the process because there is no present obligation to
do so. The obligation is to stop emptying unclean water into the river. Nor is there a possible obligation whose
existence will be confirmed by an uncertain future event not wholly within Keffler’s control.
Tutorial note: Consider that Keffler has alternatives wholly within its control. For example, it could ignore the ban
and incur fines, or relocate/close this particular plant/operation or perhaps dispose of the water by alternative
means.
■ The need for a technological upgrade may be an indicator of impairment. Management should have carried out
an impairment test on the carrying value of the water purifying process and recognised any impairment loss in the
profit for the year to 31 March 2006.
■ Management’s intention to upgrade the process is more appropriate to an environmental responsibility report (if
any).
■ Whether there is any other information in documents containing financial statements.
(ii) Audit evidence
■ Penalty notices of fines received to confirm amounts and period/dates covered.
■ After-date payment of fines agreed to the cash book.
■ A copy of the ban and any supporting report on the local government’s findings.
■ Minutes of board meetings at which the ban was discussed confirming management’s intentions (e.g. to upgrade
the process).
Tutorial note: This may be disclosed in the directors’ report and/or as a non-adjusting post balance sheet event.
■ Any tenders received/costings for upgrading.
Tutorial note: This will be relevant if, for example, capital commitment authorised (by the board) but not
contracted for at the year end are disclosed in the notes to the financial statements.
■ Physical inspection of the emptying point at the river to confirm that Keffler is not still emptying waste water into
it (unless the upgrading has taken place).
Tutorial note: Thereby incurring further penalties. -
第20题：
(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of
$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in the
consolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,
$4·5 million, in its separate financial statements.
Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of
$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes to
Aragon’s financial statements disclose that they have been prepared on a going concern basis that assumes that
Seymour will continue to provide financial support. (7 marks)
Required:
For each of the above 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 Seymour Co for the year ended
30 September 2006.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(b) Goodwill
(i) Matters
■ Cost of goodwill, $1·8 million, represents 3·4% consolidated total assets and is therefore material.
Tutorial note: Any assessments of materiality of goodwill against amounts in Aragon’s financial statements are
meaningless since goodwill only exists in the consolidated financial statements of Seymour.
■ It is correct that the goodwill is not being amortised (IFRS 3 Business Combinations). However, it should be tested
at least annually for impairment, by management.
■ Aragon has incurred losses amounting to $1·1 million since it was acquired (two years ago). The write-off of this
amount against goodwill in the consolidated financial statements would be material (being 61% cost of goodwill,
8·3% PBT and 2·1% total assets).
■ The cost of the investment ($4·5 million) in Seymour’s separate financial statements will also be material and
should be tested for impairment.
■ The fair value of net assets acquired was only $2·7 million ($4·5 million less $1·8 million). Therefore the fair
value less costs to sell of Aragon on other than a going concern basis will be less than the carrying amount of the
investment (i.e. the investment is impaired by at least the amount of goodwill recognised on acquisition).
■ In assessing recoverable amount, value in use (rather than fair value less costs to sell) is only relevant if the going
concern assumption is appropriate for Aragon.
■ Supporting Aragon financially may result in Seymour being exposed to actual and/or contingent liabilities that
should be provided for/disclosed in Seymour’s financial statements in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
(ii) Audit evidence
■ Carrying values of cost of investment and goodwill arising on acquisition to prior year audit working papers and
financial statements.
■ A copy of Aragon’s draft financial statements for the year ended 30 September 2006 showing loss for year.
■ Management’s impairment test of Seymour’s investment in Aragon and of the goodwill arising on consolidation at
30 September 2006. That is a comparison of the present value of the future cash flows expected to be generated
by Aragon (a cash-generating unit) compared with the cost of the investment (in Seymour’s separate financial
statements).
■ Results of any impairment tests on Aragon’s assets extracted from Aragon’s working paper files.
■ Analytical procedures on future cash flows to confirm their reasonableness (e.g. by comparison with cash flows for
the last two years).
■ Bank report for audit purposes for any guarantees supporting Aragon’s loan facilities.
■ A copy of Seymour’s ‘comfort letter’ confirming continuing financial support of Aragon for the foreseeable future. -
第21题：
(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirements
to Hogg Warehousing Services. At 31 March 2007 it was not possible to physically inspect Lamont’s inventory
held by Hogg due to health and safety requirements preventing unauthorised access to cold storage areas.
Lamont’s management has provided written representation that inventory held at 31 March 2007 was
$10·1 million (2006 – $6·7 million). This amount has been agreed to a costing of Hogg’s monthly return of
quantities held at 31 March 2007. (7 marks)
Required:
For each of the above 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 Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(b) Outsourced cold storage
(i) Matters
■ Inventory at 31 March 2007 represents 21% of total assets (10·1/48·0) and is therefore a very material item in the
balance sheet.
■ The value of inventory has increased by 50% though revenue has increased by only 7·5%. Inventory may be
overvalued if no allowance has been made for slow-moving/perished items in accordance with IAS 2 Inventories.
■ Inventory turnover has fallen to 6·6 times per annum (2006 – 9·3 times). This may indicate a build up of
unsaleable items.
Tutorial note: In the absence of cost of sales information, this is calculated on revenue. It may also be expressed
as the number of days sales in inventory, having increased from 39 to 55 days.
■ Inability to inspect inventory may amount to a limitation in scope if the auditor cannot obtain sufficient audit
evidence regarding quantity and its condition. This would result in an ‘except for’ opinion.
■ Although Hogg’s monthly return provides third party documentary evidence concerning the quantity of inventory it
does not provide sufficient evidence with regard to its valuation. Inventory will need to be written down if, for
example, it was contaminated by the leakage (before being moved to Hogg’s cold storage) or defrosted during
transfer.
■ Lamont’s written representation does not provide sufficient evidence regarding the valuation of inventory as
presumably Lamont’s management did not have access to physically inspect it either. If this is the case this may
call into question the value of any other representations made by management.
■ Whether, since the balance sheet date, inventory has been moved back from Hogg’s cold storage to Lamont’s
refrigeration units. If so, a physical inspection and roll-back of the most significant fish lines should have been
undertaken.
Tutorial note: Credit will be awarded for other relevant accounting issues. For example a candidate may question
whether, for example, cold storage costs have been capitalised into the cost of inventory. Or whether inventory moves
on a FIFO basis in deep storage (rather than LIFO).
(ii) Audit evidence
■ A copy of the health and safety regulation preventing the auditor from gaining access to Hogg’s cold storage to
inspect Lamont’s inventory.
■ Analysis of Hogg’s monthly returns and agreement of significant movements to purchase/sales invoices.
■ Analytical procedures such as month-on-month comparison of gross profit percentage and inventory turnover to
identify any trend that may account for the increase in inventory valuation (e.g. if Lamont has purchased
replacement inventory but spoiled items have not been written off).
■ Physical inspection of any inventory in Lamont’s refrigeration units after the balance sheet date to confirm its
condition.
■ An aged-inventory analysis and recalculation of any allowance for slow-moving items.
■ A review of after-date sales invoices for large quantities of fish to confirm that fair value (less costs to sell) exceed
carrying amount.
■ A review of after-date credit notes for any returns of contaminated/perished or otherwise substandard fish. -
第22题：
(b) You are the audit manager of Petrie Co, a private company, that retails kitchen utensils. The draft financial
statements for the year ended 31 March 2007 show revenue $42·2 million (2006 – $41·8 million), profit before
taxation of $1·8 million (2006 – $2·2 million) and total assets of $30·7 million (2006 – $23·4 million).
You are currently reviewing two matters that have been left for your attention on Petrie’s audit working paper file
for the year ended 31 March 2007:
(i) Petrie’s management board decided to revalue properties for the year ended 31 March 2007 that had
previously all been measured at depreciated cost. At the balance sheet date three properties had been
revalued by a total of $1·7 million. Another nine properties have since been revalued by $5·4 million. The
remaining three properties are expected to be revalued later in 2007. (5 marks)
Required:
Identify and comment on the implications of these two matters for your auditor’s report on the financial
statements of Petrie Co for the year ended 31 March 2007.
NOTE: The mark allocation is shown against each of the matters above.
正确答案：
(b) Implications for auditor’s report
(i) Selective revaluation of premises
The revaluations are clearly material to the balance sheet as $1·7 million and $5·4 million represent 5·5% and 17·6%
of total assets, respectively (and 23·1% in total). As the effects of the revaluation on line items in the financial statements
are clearly identified (e.g. revalued amount, depreciation, surplus in statement of changes in equity) the matter is not
pervasive.
The valuations of the nine properties after the year end provide additional evidence of conditions existing at the year end
and are therefore adjusting events per IAS 10 Events After the Balance Sheet Date.
Tutorial note: It is ‘now’ still less than three months after the year end so these valuations can reasonably be expected
to reflect year end values.
However, IAS 16 Property, Plant and Equipment does not permit the selective revaluation of assets thus the whole class
of premises would need to have been revalued for the year to 31 March 2007 to change the measurement basis for this
reporting period.
The revaluation exercise is incomplete. Unless the remaining three properties are revalued before the auditor’s report on
the financial statements for the year ended 31 March 2007 is signed off:
(1) the $7·1 revaluation made so far must be reversed to show all premises at depreciated cost as in previous years;
OR
(2) the auditor’s report would be qualified ‘except for’ disagreement regarding non-compliance with IAS 16.
When it is appropriate to adopt the revaluation model (e.g. next year) the change in accounting policy (from a cost model
to a revaluation model) should be accounted for in accordance with IAS 16 (i.e. as a revaluation).
Tutorial note: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors does not apply to the initial
application of a policy to revalue assets in accordance with IAS 16.
Assuming the revaluation is written back, before giving an unmodified opinion, the auditor should consider why the three
properties were not revalued. In particular if there are any indicators of impairment (e.g. physical dilapidation) there
should be sufficient evidence on the working paper file to show that the carrying amount of these properties is not
materially greater than their recoverable amount (i.e. the higher of value in use and fair value less costs to sell).
If there is insufficient evidence to confirm that the three properties are not impaired (e.g. if the auditor was prevented
from inspecting the properties) the auditor’s report would be qualified ‘except for’ on grounds of limitation on scope.
If there is evidence of material impairment but management fail to write down the carrying amount to recoverable
amount the auditor’s report would be qualified ‘except for’ disagreement regarding non-compliance with IAS 36
Impairment of Assets.
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第23题：
What is acceptable flame screening ________．
A.A fitted single brass screen of 10 x 10 mesh
B.A fitted stainless steel screen of 30 x 30 mesh
C.A fitted single stainless steel screen of 15 x 15 mesh
D.Two fitted brass screens of 10 x 15 mesh spaced 1/2 inch apart
正确答案：B