Uol Past Year Paper

This paper is non to be removed from the Examination Halls UNIVERSITY OF LONDON AC3093 ZB (279 0093) BSc Degrees and Diplomas for Graduates in Economics, Management, pay and the Social Sciences, the Diplomas in Economics and Social Sciences and Access Rtabooe Auditing and Assurance Friday, 18 may 2012 10. 00am to 1. 00pm Candidates should answer FOUR of the following EIGHT headers TWO from Section A, unrivalled from Section B and ONE further question from either section. every last(predicate) questions carry equal marks. University of London 2012 UL12/0010 D01 PLEASE TURN OVER foliate 1 of 6SECTION A Answer TWO questions from this section and not more(prenominal) than maven further question. (You ar reminded that quadruplet questions in total be to be attempted with at least(prenominal)(prenominal) one from Section B. ) 1. You eat bonnie been approached by the newly-appointed Senior Regulator for the financial services (including account statement and scrutinizein g) industry in a country which has previously had little or no regulation on the provision of financial information. The Regulator has tell that his first priority is to improve the lumber of annual financial statements which the major companies in the country publish.The Regulator has established working parties to interpret improvements in the quality of accounting and financial plowing practices. An other(a) working society has been established to examine the quality of inspect field work. The Regulator tells you that he wants your working caller to be sick forward proposals which leave behind improve the quality of get to stock inform. He is concerned that present practices allow individual scrutinizeors to report in their own way. This has led to confusion, since in that location argon so troopsy another(prenominal) different styles of audit report. The Regulator believes that a standardised approach will reduce this confusion.He is awargon that there are int ernational auditing standards on auditing and asks you to examine the possibility of adopting an approach consistent with the international standards. He asks you to look at the following specific aspects of audit reporting To whom the audit report is communicate A reference to the fashion model of accounting A reference to the framework of auditing Some discussion of what can be and what cannot be expected from an audit The style of opinion on the financial statements, and Any other materializations you echo might be relevant. requisite (a) (b) Draft a report from your working party on the specific issues mentioned above. (15 marks) Draft an appendix to this report setting out the advantages and disadvantages of a standardised approach to audit reporting. (10 marks) UL12/0010 D01 rogue 2 of 6 2. You are the audit partner of Lottolife, a leisure establishment which includes a bar and a restaurant open to the popular public. The management consists of a senior manager and three assistant managers all four are paid a salary with a profit-related bonus.Both the bar and the restaurant are dependent on casual workers who are paid an hourly assess in cash at the end of the week. To temperament the hours worked, each employee has to quantify in and clock out using a clock control board inserted into a machine which records the time in and out. There is no other check on the accuracy of the recorded hours. Workers are hired aft(prenominal) a short interview by one of the assistant managers who completes a form to record the details of the successful applicant. The company has a poor people reputation as an employer and expects its module to work long hours.Consequently employees tend not to stay very long. On resigning, an employee has to sign a form which is endorsed by the assistant manager and is then handed to the Payroll Department so that the employees last pay packet can be do up and the employee taken off the payroll department. There are n ever profuse applicants to fill the vacancies and almost no applicant is rejected. Both pay and cater morale are low. In an attempt to boost the pay and gain more and better staff, one of the assistant managers has suggested paying a periodical bonus from the cash tips left by customers.The tips would be divided among the workers quite a than being banked as part of the takings. There would be no record kept of the tips which would mean that the workers would not be taxed on their bonus. It a worry has a members-only club which is a licensed casino where various forms of gaming take place. Under the licensing rules only trained staff can be employed and these are reasonably well paid jobs. Occasionally if there is a staff shortage on the catering side in the casino, members of the bar and restaurant staff are brought in, given new uniforms and are instructed to help out.Technically this is against the gaming rules, but the casino management adopt that if the break of serve is ever discovered by the authorities, the worst thing that might demote would be the casino having to pay a fine. They are aware up to now that it is possible that the licence could be withdrawn and the casino could be oblige to close. Required (a) (b) Identify possible weaknesses in the control environment in Lottolife. (15 marks) Suggest various audit procedures which might be appropriate in the particular circumstances of Lottolife. (10 marks) UL12/0010 D01 Page 3 of 6 3.You suck up just been appointed listener of Brutons Ltd, a small family-owned gentlemens tailors and dress shop. It is based in the South-West of England where it has six shops in different towns. The change state it stocks and sells are at the upper end of the price range, appealing to the wealthier customer. The company, like its customers is old-fashioned. In fact, the decor of the shops has not changed since the 1960s. The head of the family and major shareholder, John Bruton, is time-honored 86 and sees no reason to change what has for fifty geezerhood been a winning formula a top quality service and a premium price.He dismisses the falling sales and lower profits as merely consequences of the tough economic climate. The three other shareholders are Brutons sons, the youngest of whom is 53. The sons contract tried to get their father to change strategy since they take a leak seen equivalent companies in other regions increase their market share through the net and through a radical make-over of their retail outlets. They accept that their plans will damage approximately ? 10m and they will need a bank loan to pay what is effectively a re-branding exercise.They believe, though they have not done a detailed analysis, that internet sales over the next three old age would bring in profuse cash to repay the loan and enough profit to cover loan interest. After that, there would be fetch profit for about ten years until the next rebranding was needed. In addition, the le ases on the shops are all going to expire in the next louvre years. These can be renewed but it will be costly as the premises are all in city kernel locations which are highly sought after by companies in the fare and drinks industry.With insufficient cash reserves, Brutons would need further bank financial backing to cover the capital cost of renewing these long term leases. The sons are also urging their father to consider buying in cheaper apparel imported from Asia as way of boosting sales and profits. The father who is very jingoistic has rejected this suggestion, choosing instead to stay with British-based suppliers who have served him well since he began in business. Brutons accounting system dates from the 1960s. It is mainly manual with sales staff making out a handwritten receipt for each sale.Cash is put through a till but there is no propitiation of receipts and takings through the till. The shops do have credit observation facilities but again there is no reco nciliation of sales and humor receipts. The main element of control is the presence of one of Brutons sons. separately is responsible for two shops which they attend on alternate days. This close lapse has seemed to work well until, Roger, the eldest son, had a heart attack and was unavailing to work for six months. During this time, his two brothers supervised the six shops visiting one every three days.Roger is now back at work though he only works reduced hours at one location. Required (a) (b) Identify the major elements of audit essay in Brutons Ltd. (15 marks) explicate the steps you would have taken before formally accepting try-on as auditor of Brutons Ltd. (10 marks) UL12/0010 D01 Page 4 of 6 4. You have just been appointed the Quality Assurance Partner in Raiffes & Co. , hire Accountants and Registered Auditors. You are currently reviewing a sample of the audit files of five audit clients.Your aim is to ensure that the quality of audit work at least matches and, if possible, exceeds the minimum standard required under the international auditing standards and UK legislation. You have do the following list of items which cause you concern In Albany Ltd, the audit team noted that although accurate inventory records had not been kept during the year, the closing stock count was tightly controlled and a detailed review of pull in profit margins suggested little chance of material error. On this basis the audit manager had recommended signing an unmodified opinion.In Boverton plc, a weakness in native control had been detected early in the audit. The weakness concerned payroll and may have allowed overpayments to genuine staff and/or payments to fictitious staff. Because payroll is such a sensitive area, the audit team had done goose egg more than note the weakness in the audit file, highlighting the issue for partner review. In Chirley plc, the company had failed to comply with the relevant financial reporting standard for pension costs. The matter is one of disclosure rather than measurement.The Finance conductor simply will not accept that the standard is ready and insists that he is right. The recommendation from the audit team is to agree with the Finance Director since the accounting numbers are right and the firm should not risk upsetting a major client. In Dalton, a fraud involving the vote counter had been discovered. The amount involved was immaterial to the financial statements. When the Finance Director was told about the fraud, he was unmoved, claiming that he knew about the fraud which had been going on since the man was first employed five years ago.The Finance Director give tongue to that he allowed the cashier to supplement his salary in this way since it was cheaper than magnanimous him a pay rise. In Exeter Ltd, this was the first year of the audit appointment. The obstinate asset register had not been maintained for the last five years meaning that it was impossible to assess from the records ho w long the assets had been in use. Total perceptible fixed assets are material to the financial statements. The team had immediately stop work on fixed assets concluding that the audit report would have to be modified on the grounds of disagreement. Required (a) Evaluate the position in each of the five cases and suggest an appropriate course of work in each including if necessary modifying the auditors report. (15 marks) Suggest steps which the firm should take to ensure that all its audits come up tot the appropriate standard. (10 marks) (b) UL12/0010 D01 Page 5 of 6 SECTION B Answer ONE question from this section and not more than one further question. (You are reminded that four questions in total are to be attempted with at least two from Section A. ) 5.Because audit time is not unlimited, sampling is a key component of any audit strategy. Explain the various factors which auditors consider when setting up their sampling plan. 6. critically evaluate the purpose of an audit from the point of view of the readers of the auditors report. 7. You are required to write a general theory of auditing of financial statements. What concepts and assumptions would you include and what purpose would each serve? 8. Critically evaluate the measures taken in the IFAC Code of Ethics to safeguard auditor independence. END OF PAPER UL12/0010 D01 Page 6 of 6