State the advantages and disadvantages of a framework approach to corporate
governance as opposed to a legislative approach
Set out the rights and duties of auditors under the Companies Act
2006
In order to prove a successful claim for negligence against an audit firm there has to be
a duty of care which was breached by the audit firm with the result that a loss was
incurred. Auditors Tickett & Run were amazed to receive a negligence claim from one
of their client’s bankers Gurney plc who had lent money to their client,Megabuild, after
the year end and subsequently lost their money when a construction project Megabuild
had been involved in went badly wrong and bankrupted them. The claim said that the
auditors had significantly failed to estimate the losses on the project with the result that
the bank, had they known the true position, would not have lent money to Megabuild.
Gurney plc is claiming its losses from Tickett & Run. What advice would yopu give to
Tickett
& Run in this situation?
Complete the following internal control procedures
Segregation of duties
Organisational controls
Arithmetic
Physical
Supervision Personnel
Authorisation
Management
What is meant by ‘˜substance over form’?
The Chairman’s Report of Pudding plc states that investment property rental forms a
major part of revenue. However, a note to the financial statements shows that property
rental represents only 1·6% of total revenue for the year. The audit senior is satisfied
that the revenue figures are correct. The audit senior has noted that an unmodified audit
report should be given as the audit opinion does not extend to the other reports.
Is the audit senior correct?
You are the auditor of Whizzipop plc a manufacturer of soft drinks. The draft
consolidated financial statements for the year ended 30 September 2X11 show revenue
of $125 million (2X10 ‘“ $114 million), profit before taxation of $12.4 million (2X10 ‘“
$10.9 million) and total assets of $110 million (2X10 ‘“ $93 million).
It has several subsidiaries, some of which are audited by firms other than yours.The
financial statements of one such subsidiary company, Twizzle, for the year ended 30
September 2X11, are audited by another firm. Profit before taxation of $0.4 million and
total assets of
$34.1 million have been included in the draft consolidated financial statements of
Whizzipop. The notes to Twizzle’s financial statements as at 30 September 2X11
disclose a contingent liability for a pending legal matter estimated at $0.2 million. In
November 2X11, the courts found Twizzle to be liable for costs and damages
amounting to $1.1 million. However, Twizzle’s directors have refused to make a
provision, for any amount, as they have lodged
an appeal against the judgement.
What evidence would you expect to see in respect of this liability?
You are the auditor of an engineering firm called Thumpit & Hope Ltd. You are
planning for a physical inventory count at the company’s warehouse on 31 August
2X11. The company assembles domestic appliances, and inventory of finished
appliances, unassembled parts and sundry inventories are stored in the warehouse
which is adjacent to the company’s assembly plant. The plant will continue to produce
goods during the stock count until 5 pm on 31 August 2X On 30 August 2X11, the
warehouse staff will deliver the estimated quantities of unassembled parts and sundry
inventories which will be required for production for 31 May 2X111; however
emergency requisitions by the factory will be filled on 31 August. During the inventory
count, the warehouse staff will continue to receive parts and sundry inventories, and to
despatch finished appliances. Appliances which are completed on 31 August 2X11 will
remain in the assembly plant until after the physical inventory count has been
completed.
Describe the procedures which Camry Products Ltd should establish in order to ensure
that all inventory items are counted and that no item is counted twice.
At the completion stage of an audit there are a number of final review procedures which
must be carried out prior to signing the audit report. In not more than 500 words explain
these procedures and the reasons for them.
You are the auditor of Whizzipop plc a manufacturer of soft drinks. The draft
consolidated financial statements for the year ended 30 September 2X11 show revenue
of $125 million (2X10 ‘“ $114 million), profit before taxation of $12.4 million (2X10 ‘“
$10.9 million) and total assets of $110 million (2X10 ‘“ $93 million).
It has several subsidiaries, some of which are audited by firms other than yours.The
financial statements of one such subsidiary company, Twizzle, for the year ended 30
September 2X11, are audited by another firm. Profit before taxation of $0.4 million and
total assets of
$34.1 million have been included in the draft consolidated financial statements of
Whizzipop. The notes to Twizzle’s financial statements as at 30 September 2X11
disclose a contingent liability for a pending legal matter estimated at $0.2 million. In
November 2X11, the courts found Twizzle to be liable for costs and damages
amounting to $1.1 million. However, Twizzle’s directors have refused to make a
provision, for any amount, as they have lodged
an appeal against the judgement.
What action would you, as group auditor, take in respect of this liability?