QUESTION 1
Assume you are an auditor and are facing the following separate circumstances .All the following items are material .You can assume that management have refused to make any changes necessary to make the financial report "true and fair" so that the circumstances mentioned still exist.
1. The value of the write off for the Allowance for Doubtful Debts is inadequate .Management are unwilling to adjust it although the amount leads to a material misstatement of Accounts Receivable. The amount of the misstatement is limited to the Receivables and is able to be calculated.
2.A retailer provides a valuation for inventory at sales price less an allowance for sales margin.
3.The Block company has just been advised that its main customer who purchases 45% of its stock has just gone into liquidation.Due to the specific nature of its products Block company is unlikely to find another customer of this size.Block has been starting to have difficulties in making sufficient sales to continue operating.
4.TheCroucher company has been valuing its buildings using the fair value method.Its buildings are currently shown in the balance sheet at their current market value of 18.5 million. The buildings had originally cost 12 million.
5.TheKaycee company values its inventory at LIFO and is unwilling to change it to FIFO as required by the Australian accounting standards.The amount of the misstatement is known and is limited to its effect on the inventory .
6.The Genome company has prepared its financial statements but has left out details of its related party disclosures due to privacy issues.This information is required to be included under the Australian accounting standards and while the effects are material they are able to be calculated.
Required:
For each of the above situations state the Audit Opinion that should be given with a brief reason/explanation related to each one .
QUESTION 2
The Office Two company sells various stationery and office equipment through its stores .It sells items both at its shopfront and through its internet order service .Orders accepted over the phone are delivered in the Sydney metropolitan area within one day . All sales are made for cash.The following are the procedures for sales.
1.Customers in the store pay for their stationery giving the cash to a staff member at the desk .The staff member creates an Invoice and gives the customer a receipt on a copy of the Invoice .
2.Customers who have ordered over the phone are given a sales order number by the staff member who prints two copies of the order.The staff member then collects the items from the store and arranges delivery of the order ,giving the goods and the invoice copies of the order to the driver
3.The driver delivers the goods to the customer collects the cash from the customer and receipts the customer's copy of the invoice.
4.The driver returns and hands over the cash and the second copy of the Invoice to a staff member in the store.
5.At the end of each day each staff member gives all cash they taken to the Store Manager who locks it in the safe overnight.
6.The next day the staff manager opens the safe and takes the cash to the bank alone .
Required:
Identify the weaknesses in the above procedures.