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Professional Accounting Education
Provided by Academy of Professional Accounting (APA)
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ACCA F8 习题详解 Audit and Assurance (AA)
审计与鉴证业务 第21讲
ACCA Lecturer: Andy Qu
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1
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MCQ Bank: Audit Report (1)
Contents of Class 21
Case: Palm and Ash Trading (June 2015)
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Revision: Types of audit Report
Unmodified Report
Modified Report but unmodified opinion
Emphasis of Matter Paragraph
Modified Report and Opinion
Nature Material but not
pervasive Material and pervasive
F/S are materially misstated
Qualified Opinion (Disagreement)
Adverse Opinion
Auditor unable to obtain sufficient audit evidence
Qualified Opinion (Limitation on scope)
Disclaimer of Opinion
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MCQ: Audit Report (1)
Which of the following is not included in an unmodified
auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion
D Deficiencies of internal controls
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MCQ: Audit Report (1)
D
The basic elements of the auditor's report are title,
addressee, introductory paragraph, management's
responsibility for financial statements, auditor's
responsibility, opinion paragraph, other reporting
responsibilities, auditor's signature, date of the report and
auditor's address.
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MCQ: Audit Report (1)
The auditor of Q Co has completed the audit and has
concluded that sufficient appropriate evidence has been
obtained, which confirms that the financial statements are
not materially misstated.
Which form of audit opinion will the auditor issue?
A Adverse opinion
B Qualified opinion
C Unmodified opinion
D A disclaimer of opinion
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MCQ: Audit Report (1)
C
An unmodified opinion is expressed when the auditor
concludes that the financial statements are prepared, in
all material respects, in accordance with the applicable
financial reporting framework.
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MCQ: Audit Report (1)
The auditor of B Co has concluded that inventory is overstated as a
number of lines have not been valued at the lower of cost and net
realizable value. The overstatement is material but not pervasive to
the financial statements. Management has refused to make an
adjustment to the financial statements.
What form of modified opinion should the auditor issue?
A Adverse opinion
B Disclaimer of opinion
C Qualified opinion due to a material misstatement
D Qualified opinion due to insufficient appropriate evidence on which to
base an opinion
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MCQ: Audit Report (1)
C
The auditor issues a qualified opinion as the issue is
material but not pervasive. The grounds for the
modification are that the financial statements are
misstated rather than due to insufficient evidence.
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MCQ: Audit Report (1)
The financial statements of Z Co include a receivables
balance of $20,000 which the auditors do not believe will
be recovered. Materiality has been set at $100,000.
There are no other unadjusted misstatements.
What form of audit opinion would be issued by the
auditor?
A Adverse opinion
B Unmodified opinion
C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables
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MCQ: Audit Report (1)
B
Although the receivables balance is overstated, the
amount involved is not material.
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Case: June 2015
You are the audit manager of Chestnut & Co and are reviewing the key
issues identified in the files of two audit clients.
Palm Industries Co (Palm)
Palm’s year end was 31 March 2015 and the draft financial statements
show revenue of $28·2 million, receivables of $5·6 million and profit before
tax of $4·8 million. The fieldwork stage for this audit has been completed.
A customer of Palm owed an amount of $350,000 at the year end. Testing
of receivables in April highlighted that no amounts had been paid to Palm
from this customer as they were disputing the quality of certain goods
received from Palm. The finance director is confident the issue will be
resolved and no allowance for receivables was made with regards to this
balance.
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Case: June 2015
Ash Trading Co (Ash)
Ash is a new client of Chestnut & Co, its year end was 31 January 2015
and the firm was only appointed auditors in February 2015, as the
previous auditors were suddenly unable to undertake the audit. The
fieldwork stage for this audit is currently ongoing.
The inventory count at Ash’s warehouse was undertaken on 31 January
2015 and was overseen by the company’s internal audit department.
Neither Chestnut & Co nor the previous auditors attended the count.
Detailed inventory records were maintained but it was not possible to
undertake another full inventory count subsequent to the year end. The
draft financial statements show a profit before tax of $2·4 million,
revenue of $10·1 million and inventory of $510,000.
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Case: June 2015
Required:
For each of the two issues:
(i) Discuss the issue, including an assessment of
whether it is material;
(ii) Recommend ONE procedure the audit team
should undertake to try to resolve the issue; and
(iii) Describe the impact on the audit report if the
issue remains UNRESOLVED.
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Answer: Palm – Question 1
A customer of Palm’s owing $350,000 at the year end
has not made any post year-end payments as they are
disputing the quality of goods received. No allowance for
receivables has been made against this balance. As the
balance is being disputed, there is a risk of incorrect
valuation as some or all of the receivable balance is
overstated, as it may not be paid.
This $350,000 receivables balance represents 1·2%
(0·35/28·2m) of revenue, 6·3% (0·35/5·6m) of
receivables and 7·3% (0·35/4·8m) of profit before tax;
hence this is a material issue.
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Answer: Palm – Question 2
A procedure to adopt includes:
– Review whether any payments have subsequently been
made by this customer since the audit fieldwork was
completed.
– Discuss with management whether the issue of quality of
goods sold to the customer has been resolved, or whether it
is still in dispute.
– Review the latest customer correspondence with regards
to an assessment of the likelihood of the customer making
payment.
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Answer: Palm – Question 3
If management refuses to provide against this receivable,
the audit report will need to be modified. As receivables
are overstated and the error is material but not pervasive
a qualified opinion would be necessary.
A basis for qualified opinion paragraph would be needed
and would include an explanation of the material
misstatement in relation to the valuation of receivables
and the effect on the financial statements. The opinion
paragraph would be qualified ‘except for’.
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Answer: Ash Trading – Question 1
Ash Trading Co (Ash)
Chestnut & Co was only appointed as auditors
subsequent to Ash’s year end and hence did not attend
the year-end inventory count. Therefore, they have not
been able to gather sufficient and appropriate audit
evidence with regards to the completeness and existence
of inventory.
Inventory is a material amount as it represents 21·3%
(0·51/2·4m) of profit before tax and 5% (0·51/10·1m) of
revenue; hence this is a material issue.
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Answer: Ash Trading – Question 2
A procedure to adopt includes:
– Review the internal audit reports of the inventory count to
identify the level of adjustments to the records to assess the
reasonableness of relying on the inventory records.
– Undertake a sample check of inventory in the warehouse
and compare to the inventory records and then from inventory
records to the warehouse, to assess the reasonableness of
the inventory records maintained by Ash.
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Answer: Ash Trading – Question 3
The auditors will need to modify the audit report as they
are unable to obtain sufficient appropriate evidence in
relation to inventory which is a material but not pervasive
balance. Therefore a qualified opinion will be required.
A basis for qualified opinion paragraph will be required to
explain the limitation in relation to the lack of evidence
over inventory. The opinion paragraph will be qualified
‘except for’.
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