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1、Module C (February 2006 Session) 1 SECTION A CASE QUESTIONS (Total: 50 marks) Answer ALL of the following compulsory questions. Marks will be awarded for logical argumentation and appropriate presentation of the answers. CASE You are the audit manager of a Hong Kong CPA firm, Ng, Tung and (10 marks)
2、 (ii) determine the appropriate responses to the assessed risk in (i). (5 marks) (b) Evaluate the effectiveness of your assistants alternative procedures (i.e. the confirmation procedures for trade debtor and creditor balances) for sales and purchases cut-offs. Suggest improvements to the confirmati
3、on procedures to enhance their effectiveness. (8 marks) Module C (February 2006 Session) 3 (c) (i) Determine the possible causes of the write-off of HK$900,000 of ABCs inventory and the assertion(s) affected by it; and (4 marks) (ii) based on your view of the cause of the write-off, determine the ap
4、plicable auditing standard(s) regarding the write-off and therefore the audit work your team would perform. (10 marks) Question 2 (13 marks approximately 23 minutes) Regarding the consignment sales of ABC: (a) Identify the major audit issues in ABCs consignment sales recognition for the purpose of a
5、ssessing the risk of material misstatement at the assertion level. (6 marks) (b) Describe the procedures (including risk assessment and further audit procedures) you would perform in relation to the consignment sales. (7 marks) * * * END OF SECTION A * * * (QUESTIONS) Module C (February 2006 Session
6、) 4 SECTION B ESSAY/SHORT QUESTIONS (Total: 50 marks) Answer ALL of the following compulsory questions. Marks will be awarded for logical argumentation and appropriate presentation of the answers. Question 3 (12 marks - approximately 22 minutes) In each of the four following situations, the auditors
7、 face two sources of evidence resulting from their audit procedures. Source A Source B Situation 1 Observation of the clients physical counting of inventories at the year-end. Confirmation of the clients inventories held at an independent warehouse by requesting a confirmation from the warehouse man
8、agement. Situation 2 Observation of the clients inventories composed primarily of sophisticated electronic equipments. Observation of the clients inventories composed primarily of metal sheets. Situation 3 Review of all payments made to suppliers after the year-end to determine if they were properly
9、 recorded as trade creditors at the year-end. Request for suppliers confirmations at the year-end for all significant suppliers from which the client made purchases during the year. Situation 4 Confirmation of the clients bank balance at the year-end direct with the bank. Checking the balance of the
10、 clients bank accounts with bank statements kept by the client. Required: (a) For each of the four situations, state the most important financial statement assertion(s) which are being tested by the described audit procedures. (4 marks) (b) For each of the four situations, identify which of the two
11、sources gives more persuasive evidence, and briefly explain your reasoning. (8 marks) Module C (February 2006 Session) 5 Question 4 (11 marks - approximately 20 minutes) Kwok and part (b) 4 marks) (11 marks) Question 5 (14 marks - approximately 25 minutes) QQ Laundry Ltd has ten shops in Hong Kong.
12、One of the shops has been making a loss because of its poor location. The tangible assets of the loss-making shop mainly comprise commercial washing machines and dryers and are stated at $500,000 (after a write-down for impairment loss of $100,000) in the draft financial statements. The auditors con
13、sider that the reported value of the assets ($500,000) is material to the financial statements of QQ Laundry Ltd. There is a brand new residential estate close to the loss-making shop, and residents have recently started moving in. Accordingly, business has improved slightly, and the management of Q
14、Q Laundry Ltd expect to see the shop turning profitable during the new financial year. According to the management, the value of the assets to the business would be greater than $500,000 when the shop is profitable. All relevant audit evidence suggests that the shop is to close if its business does
15、not improve significantly. If the shop closes, its assets would be worth nothing because the cost of moving them to other shops would exceed their net realisable value. Required: State whether or not the audit report should be qualified and explain the most appropriate type of qualification (if appl
16、icable) in each of the two following situations: (a) the auditors agree with the managements assessment of the uncertainty over the tangible assets at the loss-making shop; and (7 marks) (b) the auditors disagree with the managements assessment and are convinced that losses will continue, leading to closure of the loss-making shop and requiring the complete write-off of the assets. (7 mark
