Monitoring Test MT1A Audit and Assurance F8AA-MT1A-Z16-Q Time allowed 1.5 hours All FOUR questions are compulsory and MUST be attempted. Do NOT open this paper until instructed by the supervisor. ©2016 DeVry/Becker Educational Development Corp. ® 1 You are an audit partner in Future & Co, a firm of certified accountants. You have recently been approached by the directors of Clover, a listed company, who wish to appoint your firm as auditors of the company. The existing auditors, Past & Co, are resigning at the request of the directors. Required: Describe the ethical and practical matters which you would consider prior to accepting appointment as external auditor of Clover. (9 marks) 2 Your firm has recently been appointed as auditor of Edco, a privately owned hotel, and you are to be the senior in charge of the audit. Your firm is not familiar with the hotel industry. The hotel has: (1) 100 bedrooms, 25 of which are single (2) Conference centre facilities (ranging from six syndicate rooms to a ballroom that can hold up to 350 delegates) (3) Two restaurants and a bar, which are also open to non-residents. A variety of discounts are offered to customers depending on the type of customer (e.g. conference, business or private) and the time of week or year. The management has sought to increase the room occupancy of the hotel in recent years by offering weekend discounts to tourists. The hotel has recently experienced difficulty in retaining staff and, consequently, both staff turnover and the numbers of part-time staff employed are high. All bookings and accounting transactions are maintained on two microcomputers, one of which is kept in reception and the other in the administration office. The bar and restaurants record transactions on electronic tills. The restaurant staff use palm tablets to record customers’ orders – these are linked to the restaurant electronic till with the order printed out in the kitchen. The tablets are updated daily from the administration computer with the day’s menus and prices. Required: (a) Describe basic sources of information you would find useful when familiarising yourself with the nature of business in which Edco is involved. (5 marks) (b) Describe the possible assertion risk areas relevant to Edco (e.g. consider inherent risk and control risk as defined in ISA 200). (9 marks) (c) List the internal control objectives of Edco in respect of: (i) (ii) room lettings; and part-time employee wages. (6 marks) (20 marks) ©2016 DeVry/Becker Educational Development Corp. All rights reserved. 2 3 You are the audit client partner for Excelm, a listed company. A requirement of the legislative environment under which the company operates, is that all listed companies must have an operative audit committee of at least three independent members. Excelm’s audit committee has been in operation for three years. Required: (a) Briefly explain SIX of the main roles and responsibilities of the audit committee. (6 marks) (b) Describe the communications an external auditor will have with the audit committee at various stages throughout the audit process. (6 marks) (12 marks) 4 “When obtaining audit evidence from substantive procedures, the auditor should consider the sufficiency and appropriateness of audit evidence from such procedures together with any evidence from tests of control to support financial statement assertions ...” ISA 500 Audit evidence Required: Discuss the extent to which each of the following sources of audit evidence is sufficient and appropriate: (i) initials on a grid stamp for quantity, price and extensions on purchase invoices; (ii) year-end bank report for audit purposes; and (iii) comparison of weekly till rolls (of a cash register) and cash bankings (i.e. paid into a bank account). (9 marks) End of Question Paper ©2016 DeVry/Becker Educational Development Corp. All rights reserved. 3
