Answer FOUR questions: THREE questions chosen from Section A and ONE question chosen from Section B.

Transcription

1 UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination AUDIT AND ACCOUNTABILITY NBS-6002Y Time allowed: 3 hours Answer FOUR questions: THREE questions chosen from Section A and ONE question chosen from Section B. Each question is worth 25 marks The TOTAL number of marks available for this paper is 100 Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator NBS-6002Y Module Contact: Mr Peter Russell Copyright of the University of East Anglia Version 1

2 Page 2 SECTION A 1. (a) Explain the difference between 'general' controls and 'application' controls in a computerised accounting system. (10 marks) (b) Speedy Limited imports scooters manufactured in Eastern Europe and supplies them to customers operating independent specialist shops in the Midlands and East Anglia. Speedy's head office, sales and accounting departments are based in Salhouse. The scooters are imported via Felixstowe and are stored in Speedy's nearby warehouse. The scooters are delivered to the independent shops from the warehouse. You are the audit manager of Speedy Limited and are about to begin the interim audit of the sales system. What controls would you expect to be in place on the sales and accounts departments at Speedy's head office in Salhouse and at the warehouse in Felixstowe to ensure that sales orders are authorised, the scooters are despatched, the sales are invoiced, and the money is collected from the shops? (7 marks) What audit tests would you undertake to ensure the controls were working? (8 marks) (Total 25 marks)

3 Page 3 2. (a) Explain the differences involved between 'statistical' and 'non-statistical' audit sampling. (10 marks) (b) Hoveton Limited is a rapidly expanding manufacturer of parts for the UK car industry. Because of Hoveton's rapid expansion it has failed to recruit sufficiently in the purchase ledger department with the result that suppliers' statement reconciliations that involve matching goods received notes to invoices, and invoices to suppliers' statements, are no longer performed. Also, because of the pressure on senior staff the purchase ledger master file is updated by the purchase ledger clerks. You are the auditor of Hoveton Limited and are planning the audit of trade payables. What are the key control deficiencies in the purchase ledger department of Hoveton Limited? (7 marks) What audit procedures would you undertake to ensure that the trade payables of Hoveton Limited is not materially misstated? (8 marks) (Total 25 marks) TURN OVER

4 Page 4 3. (a) Explain why auditors apply 'analytical procedures' in planning an audit. (10 Marks) (b) The following summary financial statements are available for the audit of Shops Limited, a retail company, for the 2017 (subject to audit) and the 2016 (audited) financial years. Statements of profit or loss for the years ended 31 March: Revenue Cost of sales (630) (400) Gross profit Expenses (55) (40) Operating profit Interest (30) (10) Profit (loss) for the year (15) 50 Balance Sheets as at 31 March: Assets Non-current assets 1, Current assets Inventories Trade receivables Cash at bank Total Assets 1,315 1,090 Equity and liabilities Equity Issued share capital Reserves Retained profit (loss) (15) Non-current liabilities Long term loans Current liabilities Trade payables Total equity and liabilities 1,315 1,090

5 Page 5 You are the Shop's auditor and are currently in the process of planning the 2017 final audit. Calculate FIVE ratios for BOTH years that would assist you in planning the audit. (5 Marks) Using the information provided and the ratios calculated, identify and describe FIVE audit risks and explain your response to each risk in planning the final audit of Shops Limited. (10 Marks) (Total 25 Marks) 4. (a) What is meant by an 'unmodified' audit opinion? (10 Marks) (b) You are the auditor of Wroxham Limited a manufacturer of security systems. You have completed the audit fieldwork. However, you discover that an important customer of Wroxham has claimed that the security systems supplied by Wroxham failed to pass independent tests, and the customer has issued a significant legal claim against Wroxham. The directors of Wroxham deny responsibility and have put the claim in the hands of their lawyers. What audit procedures would you adopt to form a judgement about the claim? (5 marks) Discuss the options you have available as the auditor to ensure that the legal claim is adequately reflected in the financial statements and/ or the audit report of Wroxham Limited. (10 marks) (Total 25 marks) TURN OVER

6 Page 6 SECTION B 5. Compare and contrast the risk-based and the business risk approaches to auditing. 6. Discuss why over the years the auditor s responsibility to detect and report fraud has been controversial, and why the controversy has not been easy to resolve. 7. Explain what is meant by high quality audit and discuss how audit quality can be monitored. 8. The audit committee is an essential point of contact and communication with the external auditors. Discuss the role of the audit committee in overseeing the audit process. END OF PAPER