(b) Describe the principal matters that should be included in your firm’s submission to provide internal auditservices to RBG. (10 marks)

第1题：

(b) Using the TARA framework, construct four possible strategies for managing the risk presented by Product 2.

Your answer should describe each strategy and explain how each might be applied in the case.

(10 marks)

正确答案：
(b) Risk management strategies and Chen Products
Risk transference strategy
This would involve the company accepting a portion of the risk and seeking to transfer a part to a third party. Although an
unlikely possibility given the state of existing claims, insurance against future claims would serve to limit Chen’s potential
losses and place a limit on its losses. Outsourcing manufacture may be a way of transferring risk if the ourtsourcee can be
persuaded to accept some of the product liability.
Risk avoidance strategy
An avoidance strategy involves discontinuing the activity that is exposing the company to risk. In the case of Chen this would
involve ceasing production of Product 2. This would be pursued if the impact (hazard) and probability of incurring an
acceptable level of liability were both considered to be unacceptably high and there were no options for transference or
reduction.
Risk reduction strategy
A risk reduction strategy involves seeking to retain a component of the risk (in order to enjoy the return assumed to be
associated with that risk) but to reduce it and thereby limit its ability to create liability. Chen produces four products and it
could reconfigure its production capacity to produce proportionately more of Products 1, 3 and 4 and proportionately less of
Product 2. This would reduce Product 2 in the overall portfolio and therefore Chen’s exposure to its risks. This would need
to be associated with instructions to other departments (e.g. sales and marketing) to similarly reconfigure activities to sell
more of the other products and less of Product 2.
Risk acceptance strategy
A risk acceptance strategy involves taking limited or no action to reduce the exposure to risk and would be taken if the returns
expected from bearing the risk were expected to be greater than the potential liabilities. The case mentions that Product 2 is
highly profitable and it may be that the returns attainable by maintaining and even increasing Product 2’s sales are worth the
liabilities incurred by compensation claims. This is a risk acceptance strategy.

第2题：

(ii) Construct the argument against Professor West’s opinion, and in favour of Professor Leroi’s opinion that

a principles-based approach would be preferable in developing countries. Your answer should consider

the particular situations of developing countries. (10 marks)

正确答案：
(ii) Principles-based approach
Advantages of a principles-based approach
The rigour with which governance systems are applied can be varied according to size, situation, stage of development
of business, etc. Organisations (in legal terms) have a choice to the extent to which they wish to comply, although they
will usually have to ‘comply or explain’. Explanations are more accepted by shareholders and stock markets for smaller
companies.
Obeying the spirit of the law is better than ‘box ticking’ (‘sort of business you are’ rather than ‘obeying rules’). Being
aware of overall responsibilities is more important than going through a compliance exercise merely to demonstrate
conformance.
Avoids the ‘regulation overload’ of rules based (and associated increased business costs). The costs of compliance have
been a cause of considerable concern in the United States.
Self-regulation (e.g. by Financial Services Authority in the UK) rather than legal control has proven itself to underpin
investor confidence in several jurisdictions and the mechanisms are self-tightening (quicker and cheaper than legislation)
if initial public offering (IPO) volumes fall or capital flows elsewhere.
Context of developing countries
Developing countries’ economies tend to be dominated by small and medium sized organisations (SMEs). It would be
very costly and probably futile, to attempt to burden small businesses with regulatory requirements comparable to larger
concerns.
Having the flexibility to ‘comply or explain’ allows for those seeking foreign equity to increase compliance whilst those
with different priorities can delay full compliance. In low-liquidity stock markets (such as those in some developing
countries) where share prices are not seen as strategically important for businesses, adopting a more flexible approach
might be a better use of management talent rather than ‘jumping through hoops’ to comply with legally-binding
constraints.
The state needs to have an enforcement mechanism in place to deal with non-compliance and this itself represents a
cost to taxpayers and the corporate sector. Developing countries may not have the full infrastructure in place to enable
compliance (auditors, pool of NEDs, professional accountants, internal auditors, etc) and a principles-based approach
goes some way to recognise this.

第3题：

(c) (i) Provide three examples of personal financial planning protection products that would be of use in

Henry’s situation. Justify your selections by reference to the type of protection provided. (6 marks)

正确答案：
(c) (i) Protection products
Henry is still working and has a mortgage to support. He therefore needs to protect not only his assets but also cover
any debt, or the ability to repay. The following protection policies are relevant to Henry’s situation.
Life assurance
This is a form. of insurance that pays out on a chargeable event, usually death. The main types are:
– Term Assurance which provides cover for a fixed term with the sum assured payable only on death. No investment
benefits or payments arise on survival.
– Whole of Life Assurance where the policy provides life protection. The sum assured is payable on death at any time
and usually some form. of investment benefit will accrue in the form. of a surrender value.
A qualifying policy will give a tax-free lump sum that could, for example, be used to repay the mortgage.
Permanent health insurance
Permanent health insurance policies are designed to provide the policyholder with a benefit if s/he is unable to work
through sickness or if s/he needs medical expenses or long-term care.
This would provide Henry with an income in the event of illness – again useful given his mortgage, and would avoid
the need to liquidate other assets to pay the mortgage or ongoing costs.
Critical illness insurance
These policies provide a capital sum where a critical illness (from a large range listed in the policy) is diagnosed.
For the same reasons above, Henry should consider this in conjunction with permanent health insurance.
Note: Marks will also be given for other relevant protection products, e.g. specific mortgage protection insurance linked
to an event other than death.

第4题：

(c) During the year Albreda paid $0·1 million (2004 – $0·3 million) in fines and penalties relating to breaches of

health and safety regulations. These amounts have not been separately disclosed but included in cost of sales.

(5 marks)

Required:

For each of the above issues:

(i) comment on the matters that you should consider; and

(ii) state the audit evidence that you should expect to find,

in undertaking your review of the audit working papers and financial statements of Albreda Co for the year ended

30 September 2005.

NOTE: The mark allocation is shown against each of the three issues.

正确答案：
(c) Fines and penalties
(i) Matters
■ $0·1 million represents 5·6% of profit before tax and is therefore material. However, profit has fallen, and
compared with prior year profit it is less than 5%. So ‘borderline’ material in quantitative terms.
■ Prior year amount was three times as much and represented 13·6% of profit before tax.
■ Even though the payments may be regarded as material ‘by nature’ separate disclosure may not be necessary if,
for example, there are no external shareholders.
■ Treatment (inclusion in cost of sales) should be consistent with prior year (‘The Framework’/IAS 1 ‘Presentation of
Financial Statements’).
■ The reason for the fall in expense. For example, whether due to an improvement in meeting health and safety
regulations and/or incomplete recording of liabilities (understatement).
■ The reason(s) for the breaches. For example, Albreda may have had difficulty implementing new guidelines in
response to stricter regulations.
■ Whether expenditure has been adjusted for in the income tax computation (as disallowed for tax purposes).
■ Management’s attitude to health and safety issues (e.g. if it regards breaches as an acceptable operational practice
or cheaper than compliance).
■ Any references to health and safety issues in other information in documents containing audited financial
statements that might conflict with Albreda incurring these costs.
■ Any cost savings resulting from breaches of health and safety regulations would result in Albreda possessing
proceeds of its own crime which may be a money laundering offence.
(ii) Audit evidence
■ A schedule of amounts paid totalling $0·1 million with larger amounts being agreed to the cash book/bank
statements.
■ Review/comparison of current year schedule against prior year for any apparent omissions.
■ Review of after-date cash book payments and correspondence with relevant health and safety regulators (e.g. local
authorities) for liabilities incurred before 30 September 2005.
■ Notes in the prior year financial statements confirming consistency, or otherwise, of the lack of separate disclosure.
■ A ‘signed off’ review of ‘other information’ (i.e. directors’ report, chairman’s statement, etc).
■ Written management representation that there are no fines/penalties other than those which have been reflected in
the financial statements.

第5题：

(b) Explain the matters you should consider before accepting an engagement to conduct a due diligence review

of MCM. (10 marks)

正确答案：
(b) Matters to be considered (before accepting the engagement)
Tutorial note: Although candidates may approach this part from a rote-learned list of ‘matters to consider’ it is important
that answer points be tailored, in so far as the information given in the scenario permits, to the specifics of Plaza and MCM.
It is critical that answer points should not contradict the scenario (e.g. assuming that it is Plaza’s auditor who has been
asked to undertake the assignment).
■ Information about Duncan Seymour – What is the relationship of the chief finance officer to Plaza (e.g. is he on the
management board)? By what authority is he approaching Andando to undertake this assignment?
■ The purpose of the assignment must be clarified. Duncan’s approach to Andando is ‘to advise on a bid’. However,
Andando cannot make executive decisions for a client but only provide the facts of material interest. Plaza’s
management must decide whether or not to bid and, if so, how much to bid.
■ The scope of the due diligence review. It seems likely that Plaza will be interested in acquiring all of MCM’s business
as its areas of operation coincide with Plaza’s. However it must be confirmed that Plaza is not merely interested in
acquiring only the National or International business of MCM.
■ Andando’s competence and experience – Andando should not accept the engagement unless the firm has experience in
undertaking due diligence assignments. Even then, the firm must have sufficient knowledge of the territories in which
the businesses operate to evaluate whether all facts of material interest to Plaza have been identified.
Tutorial note: Candidates should be querying their competence and experience in the fields of retailing and training
as though they were dealing with highly regulated or specialist industries such as banking or insurance.
■ Whether Andando has sufficient resources (e.g. representative/associated offices), if any, in Europe and Asia to
investigate MCM’s International business.
■ Any factors which might impair Andando’s objectivity in reporting to Plaza the facts uncovered by the due diligence
review. For example, if Duncan is closely connected with a partner in Andando or if Andando is the auditor of Frontiers.
Tutorial note: Candidates will not be awarded marks for going into ‘autopilot’ on independence issues. For example,
this is a one-off assignment so size of fee is not relevant. Andando holding shares in MCM is not possible (since whollyowned).
■ Plaza’s rationale for wishing to acquire MCM. Presumably it is significant that MCM operates in the same territories as
Plaza. Plaza may be wanting to provide extensive training programs in management, communications and marketing
to its workforce.
■ The relationship, if any, between Plaza and MCM in any of the territories. Plaza may be a major client of MCM. That
is, Plaza is currently out-sourcing training to MCM. Acquiring MCM would bring training in-house.
Tutorial note: Ascertaining what a purchaser hopes to gain from an acquisition before the assignment is accepted is
important. The facts to be uncovered for a merger from which synergy is expected will be different from those relevant
to acquiring an investment opportunity.
■ Time available – Andando must have sufficient time to find all facts that would be of material interest to Plaza before
disclosing their findings.
■ The acceptability of any limitations – whether there will be restrictions on Andando’s access to information held by MCM
(e.g. if there will not be access to board minutes) and personnel.
■ The degree of secrecy required – this may go beyond the normal duties of confidentiality not to disclose information to
outsiders (e.g. if unannounced staff redundancies could arise).
■ Why Plaza’s current auditors have not been asked to conduct the due diligence review – especially as they are
responsible for (and therefore capable of undertaking) the group audit covering the relevant countries.
■ Andando should be allowed to communicate with Plaza’s current auditor:
– to inform. them of the nature of the work they have been asked to undertake; and
– to enquire if there is any reason why they should not accept this assignment.
■ In taking on Plaza as a new client Andando may have a later opportunity to offer external audit and other services to
Plaza (e.g. internal audit).

第6题：

(d) Briefly describe the principal audit work to be performed in respect of the carrying amount of the following

items in the balance sheet:

(i) trade receivables; and (3 marks)

正确答案：
(d) Principal audit work
(i) Trade receivables
■ Review of agreements to determine the volume rebates terms. For example,
– the % discounts;
– the volumes to which they apply;
– the period over which they accumulate;
– settlement method (e.g. by credit note or other off-set or repayment).
■ Direct positive confirmation of a value-weighted sample of balances (i.e. larger amounts) to identify potential
overstatement (e.g. due to discounts earned not being awarded).
■ Monitoring of after-date cash receipts and matching against amounts due as shortfalls may indicate disputed
amounts.
■ Review of after-date credit notes to ensure adequate allowance (accrual) is made for discounts earned in the year
to 30 June 2006.
■ Credit risk analysis of individually significant balances and assessment of impairment losses (where carrying value
is less than the present value of the estimated cash flows discounted at the effective interest rate).

第7题：

(c) Briefly describe the principal audit work to be performed in respect of the carrying amount of the following

items in the balance sheet:

(i) development expenditure on the Fox model; (3 marks)

正确答案：
(c) Principal audit work
(i) Development expenditure on the Fox model
■ Agree opening balance, $6·3 million, to prior year working papers.
■ Physically inspect assembly plant/factory where the Fox is being developed and any vehicles so far manufactured
(e.g. for testing).
■ Substantiate costs incurred during the year, for example:
– goods (e.g. components) and services (e.g. consultants) to purchase invoices;
– labour (e.g. design engineers/technicians, mechanics, test drivers) to the payroll analysis;
– overheads (e.g. depreciation of development buildings and equipment, power, consumables) to
management’s calculation of overhead absorption and underlying cost accounts.
■ Review of internal trials/test drive results (e.g. in reports to management and video recordings of events).
■ Reperform. management’s impairment test of development expenditure. In particular recalculate value in use.
Tutorial note: It is highly unlikely that a reasonable estimate of fair value less costs to sell could be made for so
unique an asset.
■ Substantiate the key assumptions made by management in calculating value in use. For example:
– the level of sales expected when the car is launched to advance orders (this may have fallen with the delay
in the launch);
– the discount rate used to Pavia’s cost of capital;
– projected growth in sales to actual sales growth seen last time a new model was launched.

第8题：

(b) Explain the matters that should be considered when planning the nature and scope of the examination of

Cusiter Co’s forecast balance sheet and income statement as prepared for the bank. (7 marks)

正确答案：
(b) Matters to be considered
Tutorial note: Candidates at this level must appreciate that the matters to be considered when planning the nature and
scope of the examination are not the same matters to be considered when deciding whether or not to accept an
engagement. The scenario clearly indicates that the assignment is being undertaken by the current auditor rendering any
‘pre-engagement’/‘professional etiquette’ considerations irrelevant to answering this question.
This PFI has been prepared to show an external user, the bank, the financial consequences of Cusiter’s plans to help the bank
in making an investment decision. If Cusiter is successful in its loan application the PFI provides a management tool against
which the results of investing in the plant and equipment can be measured.
The PFI is unpublished rather than published. That is, it is prepared at the specific request of a third party, the bank. It will
not be published to users of financial information in general.
The auditor’s report on the PFI will provide only negative assurance as to whether the assumptions provide a reasonable basis
for the PFI and an opinion whether the PFI is:
■ properly prepared on the basis of the assumptions; and
■ presented in accordance with the relevant financial reporting framework.
The nature of the engagement is an examination to obtain evidence concerning:
■ the reasonableness and consistency of assumptions made;
■ proper preparation (on the basis of stated assumptions); and
■ consistent presentation (with historical financial statements, using appropriate accounting principles).
Such an examination is likely to take the form. of inquiry, analytical procedures and corroboration.
The period of time covered by the prospective financial information is two years. The assumptions for 2008 are likely to be
more speculative than for 2007, particularly in relation to the impact on earnings, etc of the investment in new plant and
equipment.
The forecast for the year to 31 December 2007 includes an element of historical financial information (because only part of
this period is in the future) hence actual evidence should be available to verify the first three months of the forecast (possibly
more since another three-month period will expire at the end of the month).
Cusiter management’s previous experience in preparing PFI will be relevant. For example, in making accounting estimates
(e.g. for provisions, impairment losses, etc) or preparing cash flow forecasts (e.g. in support of the going concern assertion).
The basis of preparation of the forecast. For example, the extent to which it comprises:
■ proforma financial information (i.e. historical financial information adjusted for the effects of the planned loan and capital
expenditure transaction);
■ new information and assumptions about future performance (e.g. the operating capacity of the new equipment, sales
generated, etc).
The nature and scope of any standards/guidelines under which the PFI has been prepared is likely to assist the auditor in
discharging their responsibilities to report on it. Also, ISAE 3400 The Examination of Prospective Financial Information,
establishes standards and provides guidance on engagements to examine and report on PFI including examination
procedures.
The planned nature and scope of the examination is likely to take into account the time and fee budgets for the assignments
as adjusted for any ‘overlap’ with audit work. For example, the examination of the PFI is likely to draw on the auditor’s
knowledge of the business obtained in auditing the financial statements to 31 December 2006. Analytical procedures carried
out in respect of the PFI may provide evidence relevant to the 31 December 2007 audit.

第9题：

(b) (i) Explain the matters you should consider to determine whether capitalised development costs are

appropriately recognised; and (5 marks)

正确答案：
(b) (i) Materiality
The net book value of capitalised development costs represent 7% of total assets in 2007 (2006 – 7·7%), and is
therefore material. The net book value has increased by 13%, a significant trend.
The costs capitalised during the year amount to $750,000. If it was found that the development cost had been
inappropriately capitalised, the cost should instead have been expensed. This would reduce profit before tax by
$750,000, representing 42% of the year’s profit. This is highly material. It is therefore essential to gather sufficient
evidence to support the assertion that development costs should be recognised as an asset.
In 2007, $750,000 capitalised development costs have been incurred, when added to $160,000 research costs
expensed, total research and development costs are $910,000 which represents 20·2% of total revenue, again
indicating a high level of materiality for this class of transaction.
Relevant accounting standard
Development costs should only be capitalised as an intangible asset if the recognition criteria of IAS 38 Intangible Assets
have been demonstrated in full:
– Intention to complete the intangible asset and use or sell it
– Technical feasibility and ability to use or sell
– Ability to generate future economic benefit
– Availability of technical, financial and other resources to complete
– Ability to measure the expenditure attributable to the intangible asset.
Research costs must be expensed, as should development costs which do not comply with the above criteria. The
auditors must consider how Sci-Tech Co differentiates between research and development costs.
There is risk that not all of the criteria have been demonstrated, especially due to the subjective nature of the
development itself:
– Pharmaceutical development is highly regulated. If the government does not license the product then the product
cannot be sold, and economic benefits will therefore not be received.
– Market research should justify the commercial viability of the product. The launch of a rival product to Flortex
means that market share is likely to be much lower than anticipated, and the ability to sell Flortex is reduced. This
could mean that Flortex will not generate an overall economic benefit if future sales will not recover the research
and development costs already suffered, and yet to be suffered, prior to launch. The existence of the rival product
could indicate that Flortex is no longer commercially viable, in which case the capitalised development costs
relating to Flortex should be immediately expensed.
– The funding on which development is dependent may be withdrawn, indicating that there are not adequate
resources to complete the development of the products. Sci-Tech has failed to meet one of its required key
performance indicators (KPI) in the year ended 30 November 2007, as products valued at 0·8% revenue have
been donated to charity, whereas the required KPI is 1% revenue.
Given that there is currently a breach of the target KPIs, this is likely to result in funding equivalent to 25% of
research and development expenditure being withdrawn. If Sci-Tech Co is unable to source alternative means of
finance, then it would seem that adequate resources may not be available to complete the development of new
products.

第10题：

A new internal auditor, Daisy Rosepetal, has recently joined Bluebell Co. She has been asked by management to

establish and to monitor a variety of social and environmental Key Performance Indicators (KPIs). Daisy has no

experience in this area, and has asked you for some advice. It has been agreed with Bluebell Co’s audit committee

that you are to provide guidance to Daisy to help her in this part of her role, and that this does not impair the

objectivity of the audit.

(c) Recommend EIGHT KPIs which could be used to monitor Bluebell Co’s social and environmental

performance, and outline the nature of evidence that should be available to provide assurance on the

accuracy of the KPIs recommended. Your answer should be in the form. of briefing notes to be used at a

meeting with Daisy Rosepetal. (10 marks)

Note: requirement (c) includes 2 professional marks.

正确答案：

第11题：

Following a competitive tender, your audit firm Cal & Co has just gained a new audit client Tirrol Co. You are the manager in charge of planning the audit work. Tirrol Co’s year end is 30 June 2009 with a scheduled date to complete the audit of 15 August 2009. The date now is 3 June 2009.

Tirrol Co provides repair services to motor vehicles from 25 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system. The software in each location is

the same because the programs were written specifically for Tirrol Co by a reputable software house. Data from each location is amalgamated on a monthly basis at Tirrol Co’s head office to produce management and financial accounts.

You are currently planning your audit approach for Tirrol Co. One option being considered is to re-write Cal & Co’s audit software to interrogate the computerised inventory systems in each location of Tirrol Co (except for head office)

as part of inventory valuation testing. However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July is a major holiday period for your audit firm.

Required:

(a) (i) Explain the benefits of using audit software in the audit of Tirrol Co; (4 marks)

(ii) Explain the problems that may be encountered in the audit of Tirrol Co and for each problem, explain

how that problem could be overcome. (10 marks)

(b) Following a discussion with the management at Tirrol Co you now understand that the internal audit department are prepared to assist with the statutory audit. Specifically, the chief internal auditor is prepared to provide you with documentation on the computerised inventory systems at Tirrol Co. The documentation provides details of the software and shows diagrammatically how transactions are processed through the inventory system. This documentation can be used to significantly decrease the time needed to understand the computer systems and enable audit software to be written for this year’s audit.

Required:

Explain how you will evaluate the computer systems documentation produced by the internal audit

department in order to place reliance on it during your audit. (6 marks)

正确答案：
(a)(i)BenefitsofusingauditsoftwareStandardsystemsatclientThesamecomputerisedsystemsandprogramsasusedinall25branchesofTirrolCo.Thismeansthatthesameauditsoftwarecanbeusedineachlocationprovidingsignificanttimesavingscomparedtothesituationwhereclientsystemsaredifferentineachlocation.UseactualcomputerfilesnotcopiesorprintoutsUseofauditsoftwaremeansthattheTirrolCo’sactualinventoryfilescanbetestedratherthanhavingtorelyonprintoutsorscreenimages.Thelattercouldbeincorrect,byaccidentorbydeliberatemistake.Theauditfirmwillhavemoreconfidencethatthe‘real’fileshavebeentested.TestmoreitemsUseofsoftwarewillmeanthatmoreinventoryrecordscanbetested–itispossiblethatallproductlinescouldbetestedforobsolescenceratherthanasampleusingmanualtechniques.Theauditorwillthereforegainmoreevidenceandhavegreaterconfidencethatinventoryisvaluedcorrectly.CostTherelativecostofusingauditsoftwaredecreasesthemoreyearsthatsoftwareisused.Anycostoverrunsthisyearcouldbeoffsetagainsttheauditfeesinfutureyearswhentheactualexpensewillbeless.(ii)ProblemsontheauditofTirrolTimescale–sixweekreportingdeadline–auditplanningTheauditreportisduetobesignedsixweeksaftertheyearend.Thismeansthattherewillbeconsiderablepressureontheauditortocompleteauditworkwithoutcompromisingstandardsbyrushingprocedures.Thisproblemcanbeovercomebycarefulplanningoftheaudit,useofexperiencedstaffandensuringotherstaffsuchassecondpartnerreviewsarebookedwellinadvance.Timescale–sixweekreportingdeadline–softwareissuesTheauditreportisduetobesignedaboutsixweeksaftertheyearend.Thismeansthatthereislittletimetowriteandtestauditsoftware,letaloneusethesoftwareandevaluatetheresultsoftesting.Thisproblemcanbealleviatedbycarefulplanning.AccesstoTirrolCo’ssoftwareanddatafilesmustbeobtainedassoonaspossibleandworkcommencedontailoringCal&Co’ssoftwarefollowingthis.Specialistcomputerauditstaffshouldbebookedassoonaspossibletoperform.thiswork.FirstyearauditcostsTherelativecostsofanauditinthefirstyearataclienttendtobegreaterduetotheadditionalworkofascertainingclientsystems.ThismeansthatCal&Comayhavealimitedbudgettodocumentsystemsincludingcomputersystems.Thisproblemcanbealleviatedtosomeextentagainbygoodauditplanning.Themanagermustalsomonitortheauditprocesscarefully,ensuringthatanyadditionalworkcausedbytheclientnotprovidingaccesstosystemsinformationincludingcomputersystemsisidentifiedandaddedtothetotalbillingcostoftheaudit.StaffholidaysMostoftheauditworkwillbecarriedoutinJuly,whichisalsothemonthwhenmanyofCal&Costafftaketheirannualholiday.Thismeansthattherewillbeashortageofauditstaff,particularlyasauditworkforTirrolCoisbeingbookedwithlittlenotice.Theproblemcanbealleviatedbybookingstaffassoonaspossibleandthenidentifyinganyshortages.Wherenecessary,staffmaybeborrowedfromotherofficesorevendifferentcountriesonasecondmentbasiswhereshortagesareacute.Non-standardsystemsTirrolCo’scomputersoftwareisnon-standard,havingbeenwrittenspecificallyfortheorganisation.Thismeansthatmoretimewillbenecessarytounderstandthesystemthanifstandardsystemswereused.Thisproblemcanbealleviatedeitherbyobtainingdocumentationfromtheclientorbyapproachingthesoftwarehouse(withTirrolCo’spermission)toseeiftheycanassistwithprovisionofinformationondatastructuresfortheinventorysystems.ProvisionofthisinformationwilldecreasethetimetakentotailorauditsoftwareforuseinTirrolCo.IssuesoflivetestingCal&Cohasbeeninformedthatinventorysystemsmustbetestedonalivebasis.Thisincreasestheriskofaccidentalamendmentordeletionofclientdatasystemscomparedtotestingcopyfiles.Tolimitthepossibilityofdamagetoclientsystems,Cal&CocanconsiderperforminginventorytestingondayswhenTirrolCoisnotoperatinge.g.weekends.Attheworst,backupsofdatafilestakenfromthepreviousdaycanbere-installedwhenCal&Co’stestingiscomplete.ComputersystemsTheclienthas25locations,witheachlocationmaintainingitsowncomputersystem.Itispossiblethatcomputersystemsarenotcommonacrosstheclientduetoamendmentsmadeatthebranchlevel.Thisproblemcanbeovercometosomeextentbyaskingstaffateachbranchwhethersystemshavebeenamendedandfocusingauditworkonmaterialbranches.UsefulnessofauditsoftwareTheuseofauditsoftwareatTirrolCodoesappeartohavesignificantproblemsthisyear.Thismeansthateveniftheauditsoftwareisready,theremaystillbesomeriskofincorrectconclusionsbeingderivedduetolackoftesting,etc.Thisproblemcanbealleviatedbyseriouslyconsideringthepossibilityofusingamanualauditthisyear.Themanagermayneedtoinvestigatewhetheramanualauditisfeasibleandifsowhetheritcouldbecompletedwithinthenecessarytimescalewithminimalauditrisk.(b)RelianceoninternalauditdocumentationTherearetwoissuestoconsider;theabilityofinternalaudittoproducethedocumentationandtheactualaccuracyofthedocumentationitself.Theabilityoftheinternalauditdepartmenttoproducethedocumentationcanbedeterminedby:–Ensuringthatthedepartmenthasstaffwhohaveappropriatequalifications.Provisionofarelevantqualificatione.g.membershipofacomputerrelatedinstitutewouldbeappropriate.–Ensuringthatthisandsimilardocumentationisproducedusingarecognisedplanandthatthedocumentationistestedpriortouse.Theuseofdifferentstaffintheinternalauditdepartmenttoproduceandtestdocumentationwillincreaseconfidenceinitsaccuracy.–Ensuringthatthedocumentationisactuallyusedduringinternalauditworkandthatproblemswithdocumentationarenotedandinvestigatedaspartofthatwork.Beinggivenaccesstointernalauditreportsontheinventorysoftwarewillprovideappropriateevidence.Regardingtheactualdocumentation:–Reviewingthedocumentationtoensurethatitappearslogicalandthattermsandsymbolsareusedconsistentlythroughout.Thiswillprovideevidencethattheflowcharts,etcshouldbeaccurate.–Comparingthedocumentationagainstthe‘live’inventorysystemtoensureitcorrectlyreflectstheinventorysystem.Thiscomparisonwillincludetracingindividualtransactionsthroughtheinventorysystems.–UsingpartofthedocumentationtoamendCal&Co’sauditsoftware,andthenensuringthatthesoftwareprocessesinventorysystemdataaccurately.However,thisstagemaybelimitedduetotheneedtouselivefilesatTirrolCo.

第12题：

单选题

We are looking for a Principal Economist, who as well as advising managers and board members on environmental economic policy matters, will develop policy relating to cost benefit analysis at the upcoming review and beyond.

A

The Principal Economist will become a board member.

B

The Principal Economist will deal with environmental matters.

C

The Principal Economist’s major responsibility is to make certain policy.

正确答案： B

解析：
这一段介绍的是招聘首席经济学家的广告。因为文中用“as well as”连接的两个部分，而其后的部分为次要内容，所以经济学家的主要职责是制定关于成本收益分析的政策，其次要的职位职责是要向经理们和董事会成员提供关于环境经济政策的意见。因此，C为正确选项。

第13题：

(e) Internal controls are very important in a complex civil engineering project such as the Giant Dam Project.

Required:

Describe the difficulties of maintaining sound internal controls in the Giant Dam Project created by working

through sub-contractors. (4 marks)

正确答案：
(e) Control and sub-contractors
Specifically in regard to the maintenance of internal controls when working with sub-contractors, the prominent difficulties
are likely to be in the following areas:
Configuring and co-ordinating the many activities of sub-contractors so as to keep progress on track. This may involve taking
the different cultures of sub-contractor organisations into account.
Loss of direct control over activities as tasks are performed by people outside R&M’s direct employment and hence its
management structure.
Monitoring the quality of work produced by the sub-contractors. Monitoring costs will be incurred and any quality problems
will be potentially costly.
Budget ‘creep’ and cost control. Keeping control of budgets can be a problem in any large civil engineering project (such the
construction of the new Wembley Stadium in the UK) and problems are likely to be made worse when the principal contractor
does not have direct control over all activities.
Time limit over-runs. Many projects (again, such as the new Wembley Stadium, but others also) over-run significantly on time.
Tutorial note: only four difficulties need to be described.

第14题：

Required:

(iii) A firm of consultants has offered to undertake a study on behalf of Envico Ltd which will provide perfect

information regarding seminar attendance during the forthcoming year.

Advise the management of Envico Ltd with regard to the maximum amount that they should pay to

consultants for perfect information regarding seminar attendance and comment briefly on the use of

perfect information in such decisions. (5 marks)

正确答案：
(iii) If attendance = 100 then management would opt for room size A which would produce a contribution of ￡832,000 x
0·2 = ￡166,400.
If attendance = 200 then management would opt for room size B which would produce a contribution of ￡2,163,200
x 0·5 = ￡1,081,600.
If attendance = 400 then management would opt for room size D which would produce a contribution of ￡6,656,000
x 0·3 = ￡1,996,800.
Therefore the expected value of perfect information would be the sum of the expected values of the three possible
outcomes which amounts to ￡3,244,800. Thus, if the information is correct then management should be willing to pay
up to ￡3,244,800 – ￡1,497,600 = ￡1,747,200 for the information. In practice, it is unlikely that perfect information
is obtainable. The management of Envico Ltd are really buying an information system that will provide them with a signal
which may prove to be correct or incorrect! For example, the consultants may predict that demand will be for 300
seminar places, however there still remains the fact that there is a likelihood of actual demand being for either 100,
200 or 400 seminar places. One should be mindful that imperfect information which may be, say only 75% reliable,
might still be worth obtaining. Other than when the value of imperfect and perfect information are equal to zero, the
value of perfect information will always be greater than the value of imperfect information.

第15题：

(b) Describe the principal audit work to be performed in respect of the useful lives of Shire Oil Co’s rig platforms.

(6 marks)

正确答案：
(b) Principal audit work – useful life of rig platforms
Tutorial notes: The platforms are just one item of each rig. Candidates should not be awarded marks here for the matters
to be considered in the assessment of useful lives (since this is illustrated in the scenario). No marks will be awarded for
criticising management for estimating useful lives on a per platform. basis or for audit work on depreciation charges/carrying
amounts unrelated to the determination of useful lives.
■ Review of management’s annual assessment of the useful life of each rig at 31 December 2005 and corroboration of
any information that has led to a change in previous estimates. For example, for the abandoned rig, where useful life
has been assessed to be at an end, obtain:
? weather reports;
? incident report supported by photographs;
? insurance claim, etc.
■ Consider management’s past experience and expertise in estimating useful lives. For example, if all lives initially
assessed as short (c. 15 years) are subsequently lengthened (or long lives consistently shortened) this would suggest
that management is being over (under) prudent in its initial estimates.
■ Review of industry comparatives as published in the annual reports of other oil producers.
■ Comparison of actual maintenance costs against budgeted to confirm that the investment needed in maintenance, to
achieve expected life expectancy, is being made.
■ Comparison of actual output (oil extracted) against budgeted. If actual output is less than budgeted the economic life
of the platform. may be:
? shorter (e.g. because there is less oil to be extracted than originally surveyed); or
? longer (e.g. because the rate of extraction is less than budgeted).
Tutorial note: An increase in actual output can be explained conversely.
■ A review of the results of management’s impairment testing of each rig (i.e. the cash-generating unit of which each
platform. is a part).
■ Recalculations of cash flow projections (based on reasonable and supportable assumptions) discounted at a suitable
pre-tax rate.
Tutorial note: As the rigs will not have readily determinable net selling prices (each one being unique and not available
for sale) any impairment will be assessed by a comparison of value in use against carrying amount.
■ Review of working papers of geologist/quantity surveyor(s) employed by Shire supporting estimations of reserves used
in the determination of useful lives of rigs.

第16题：

(c) Your firm has provided financial advice to the Pholey family for many years and this has sometimes involved your

firm in carrying out transactions on their behalf. The eldest son, Esau, is to take up a position as a senior

government official to a foreign country next month. (4 marks)

Required:

Identify and comment on the ethical and other professional issues raised by each of these matters and state what

action, if any, Dedza should now take.

NOTE: The mark allocation is shown against each of the three situations

正确答案：
(c) Financial advisor
■ Customer due diligence (CDD) and record-keeping measures apply to designated non-financial businesses and
professions (such as Dedza) who prepare for or carry out certain transactions on behalf of their clients.
■ Esau is a ‘politically exposed person’ (‘PEP’) (i.e. an individual who is to be entrusted with prominent public functions
in a foreign country).
■ Dedza’s business relationships with Pholey therefore involve reputational risks similar to those with Esau. In addition
to performing normal due diligence measures Dedza should:
? have risk management systems to have determined that Esau is a PEP;
? obtain senior partner approval for maintaining business relationships with such customers;
? take reasonable measures to establish the source of wealth and source of funds;
? conduct enhanced ongoing monitoring of the business relationship.
■ Dedza can choose to decline to act for Pholey and/or Esau (if asked).
■ If the business relationship is to be continued senior partner approval should be obtained for any transactions carried
out on Pholey’s behalf in future.
Tutorial note: The Pholey family is not described as an audit client therefore no familiarity threat arises in relation to an
audit (the family may not have any involvement in entities requiring an audit).

第17题：

(b) Chatam, a limited liability company, is a long-standing client. One of its subsidiaries, Ayora, has made losses

for several years. At your firm’s request, Chatam’s management has made a written representation that goodwill

arising on the acquisition of Ayora is not impaired. Your firm’s auditor’s report on the consolidated financial

statements of Chatam for the year ended 31 March 2005 is unmodified. Your firm’s auditor’s report on the

financial statements of Ayora is similarly unmodified. Chatam’s Chief Executive, Charles Barrington, is due to

retire in 2006 when his share options mature. (6 marks)

Required:

Comment on the ethical and other professional issues raised by each of the above matters and their implications,

if any, for the continuation of each assignment.

NOTE: The mark allocation is shown against each of the three issues.

正确答案：
(b) Unmodified auditor’s reports
Ethical and professional issues
■ An unmodified opinion means, inter alia, that:
– there are no material matters giving rise to disagreement with the auditor; and
– the auditor’s report does not include an emphasis of matter paragraph (e.g. regarding going concern).
■ By implication the auditor must have obtained sufficient appropriate evidence that notwithstanding the losses:
– the going concern basis is appropriate to Ayora’s financial statements and any related matters (e.g. parental
support) are adequately disclosed therein;
– goodwill in Chatam’s consolidated financial statements is not materially impaired.
■ Management’s written representation (that the goodwill is not impaired) must have been necessary (otherwise it should
not have been asked for). This means that Bartolome does not have sufficient other audit evidence. This seems dubious
as management should have carried out an impairment test to satisfy themselves that goodwill is not impaired. This
test should similarly have satisfied Bartolome.
■ If there is evidence that goodwill is impaired management’s refusal to write it down might be considered a fraud.
■ The matter may cast doubt on the quality of audit evidence obtained in other areas. All other matters on which
management representations have been obtained should be reviewed by another audit partner/manager.
■ Charles Barrington is retiring next year and his share options would presumably be worth less if goodwill were written
down. His position in this long-standing client suggests a familiarity threat.
■ Bartolome may be threatened by self-interest to accept the representation as sufficient in order to retain the client.
■ Bartolome may be unduly influenced by a combination of factors (familiarity and previous experience) and failing to
exercise the necessary degree of professional scepticism.
Implications for continuation with assignment
There is no reason why the audit should not be continued. However, a change in senior audit staff and audit manager may
be overdue. The unmodified auditor’s reports should be subject to a cold review and any quality control issues raised with
the staff who conducted the audit.

第18题：

(b) State, with reasons, the principal additional information that should be made available for your review of

Robson Construction Co. (8 marks)

正确答案：
(b) Principal additional information
■ Any service contracts with the directors or other members of the management team (e.g. the quantity surveyor). These
may contain ‘exit’ or other settlement terms in the event that their services are no longer required after a takeover/buyout.
■ Prior period financial statements (to 30 June 2005) disclosing significant accounting policies and the key assumptions
concerning the future (and other key sources of estimation uncertainty) that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities in the year to 30 June 2006.
For example, concerning:
– the outcome on the Sarwar dispute;
– estimates for guarantees/claims for rectification;
– assumptions made in estimating costs to completion (e.g. for increases in costs of materials or labour).
Tutorial note: Under IAS 1 ‘Presentation of Financial Statements’ the judgements made by management that have the
most significant effect on amounts recognised in financial statements (other than those involving estimations) should
also be disclosed.
■ The most recent management accounts and cash flow forecasts to assess the quality of management information being
used for decision-making and control. In particular, in providing Robson with the means of keeping its cash flows within
its overdraft limit.
Tutorial note: Note that Prescott has substantial cash resources. Therefore Robson’s lack of finance might be a reason
why its management are interested in selling the business.
■ A copy of the signed bank agreement for the overdraft facility (and any other agreements with finance providers). Any
breaches in debt covenants might result in penalties of contingent liabilities that Prescott would have to bear if it acquired
Robson.
■ The standard terms of contracts with customers for construction works. In particular, for:
– guarantees given (e.g. for rectification under warranty);
– penalty clauses (e.g. in the event of overruns or non-completion);
– disclaimers (including conditions for invoking force majeure).
Prescott will want to make some allowance for settlement of liabilities arising on contracts already completed/in-progress
when offering a price for Robson.
Tutorial note: A takeover might excuse Robson from fulfilling a contract.
■ Legal/correspondence files dealing with matters such as the claims of the residents of the housing development and
Robson’s claim against Sarwar Services Co. Also, fee notes rendered by Robson’s legal advisers showing the costs
incurred on matters referred to them.
■ Robson’s insurer’s ‘cover note’ to determine Robson’s exposure to claims for rectification work, damages, injuries to
employees, etc.
■ The quantity surveyor’s working papers for the last quarterly count (presumably at 31 March 2006) and the latest
available rolling budgets. Particular attention should be given to loss-making contracts and contracts that have not been
started. (Prescott might seek to settle rather than fulfil them.) The pattern of taking profits on contracts will be of
interest, for example, to determine the accuracy of the quantity surveyor’s estimates.
Tutorial note: A regular pattern of taking too much profit too soon might be due to underestimating costs to completion
or be evidence of cost overruns due to rectification.
■ Type and frequency of constructions undertaken. Prescott is interested in the building and refurbishment of hotels and
leisure facilities. Robson’s experience in this area may not be extensive.
■ Non-current asset register showing location of plant and equipment so that some test checking on physical existence
might be undertaken (if an agreed-upon-procedure).

第19题：

(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of

$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in the

consolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,

$4·5 million, in its separate financial statements.

Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of

$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes to

Aragon’s financial statements disclose that they have been prepared on a going concern basis that assumes that

Seymour will continue to provide financial support. (7 marks)

Required:

For each of the above issues:

(i) comment on the matters that you should consider; and

(ii) state the audit evidence that you should expect to find,

in undertaking your review of the audit working papers and financial statements of Seymour Co for the year ended

30 September 2006.

NOTE: The mark allocation is shown against each of the three issues.

正确答案：
(b) Goodwill
(i) Matters
■ Cost of goodwill, $1·8 million, represents 3·4% consolidated total assets and is therefore material.
Tutorial note: Any assessments of materiality of goodwill against amounts in Aragon’s financial statements are
meaningless since goodwill only exists in the consolidated financial statements of Seymour.
■ It is correct that the goodwill is not being amortised (IFRS 3 Business Combinations). However, it should be tested
at least annually for impairment, by management.
■ Aragon has incurred losses amounting to $1·1 million since it was acquired (two years ago). The write-off of this
amount against goodwill in the consolidated financial statements would be material (being 61% cost of goodwill,
8·3% PBT and 2·1% total assets).
■ The cost of the investment ($4·5 million) in Seymour’s separate financial statements will also be material and
should be tested for impairment.
■ The fair value of net assets acquired was only $2·7 million ($4·5 million less $1·8 million). Therefore the fair
value less costs to sell of Aragon on other than a going concern basis will be less than the carrying amount of the
investment (i.e. the investment is impaired by at least the amount of goodwill recognised on acquisition).
■ In assessing recoverable amount, value in use (rather than fair value less costs to sell) is only relevant if the going
concern assumption is appropriate for Aragon.
■ Supporting Aragon financially may result in Seymour being exposed to actual and/or contingent liabilities that
should be provided for/disclosed in Seymour’s financial statements in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
(ii) Audit evidence
■ Carrying values of cost of investment and goodwill arising on acquisition to prior year audit working papers and
financial statements.
■ A copy of Aragon’s draft financial statements for the year ended 30 September 2006 showing loss for year.
■ Management’s impairment test of Seymour’s investment in Aragon and of the goodwill arising on consolidation at
30 September 2006. That is a comparison of the present value of the future cash flows expected to be generated
by Aragon (a cash-generating unit) compared with the cost of the investment (in Seymour’s separate financial
statements).
■ Results of any impairment tests on Aragon’s assets extracted from Aragon’s working paper files.
■ Analytical procedures on future cash flows to confirm their reasonableness (e.g. by comparison with cash flows for
the last two years).
■ Bank report for audit purposes for any guarantees supporting Aragon’s loan facilities.
■ A copy of Seymour’s ‘comfort letter’ confirming continuing financial support of Aragon for the foreseeable future.

第20题：

(c) Describe the examination procedures you should use to verify Cusiter Co’s prospective financial information.

(9 marks)

正确答案：
(c) Examination procedures
■ The arithmetic accuracy of the PFI should be confirmed, i.e. subtotals and totals should be recast and agreed.
■ The actual information for the year to 31 December 2006 that is shown as comparative information should be agreed
to the audited financial statements for that year to ensure consistency.
■ Balances and transaction totals for the quarter to 31 March 2007 should be agreed to general ledger account balances
at that date. The net book value of property, plant and equipment should be agreed to the non-current asset register;
accounts receivable/payable to control accounts and cash at bank to a bank reconciliation statement.
■ Tenders for the new equipment should be inspected to confirm the additional cost included in property, plant and
equipment included in the forecast for the year to 31 December 2008 and that it can be purchased with the funds being
lent by the bank.
■ The reasonableness of all new assumptions should be considered. For example, the expected useful life of the new
equipment, the capacity at which it will be operating, the volume of new product that can be sold, and at what price.
■ The forecast income statement should be reviewed for completeness of costs associated with the expansion. For
example, operating expenses should include salaries of additional equipment operatives or supervisors.
■ The consistency of accounting practices reflected in the forecast with International Financial Reporting Standards (IFRS)
should be considered. For example, the intangible asset might be expected to be less than $10,000 at 31 December
2008 as it should be carried at amortised cost.
■ The cost of property, plant and equipment at 31 December 2008 is $280,000 more than as at 31 December 2007.
Consideration should be given to the adequacy of borrowing $250,000 if the actual investment is $30,000 more.
■ The terms of existing borrowings (both non-current and short-term) should be reviewed to ensure that the forecast takes
full account of existing repayment schedules. For example, to confirm that only $23,000 of term borrowings will become
current by the end of 2007.
Trends should be reviewed and fluctuations explained, for example:
■ Revenue for the first quarter of 2007 is only 22% of revenue for 2006 and so may appear to be understated. However,
revenue may not be understated if sales are seasonal and the first quarter is traditionally ‘quieter’.
■ Forecast revenue for 2007 is 18% up on 2006. However, forecast revenue for 2008 is only 19% up on 2007. As the
growth in 2007 is before the investment in new plant and equipment it does not look as though the new investment
will be contributing significantly to increased growth in the first year.
■ The gross profit % is maintained at around 29% for the three years. However, the earnings before interest and tax (EBIT)
% is forecast to fall by 2% for 2008. Earnings after interest might be worrying to the potential lender as this is forecast
to rise from 12·2% in 2006 to 13·7% in 2007 but then fall to 7·6% in 2008.
The reasonableness of relationships between income statement and balance sheet items should be considered. For example:
■ The average collection period at each of the balance sheet dates presented is 66, 69, 66 and 66 days respectively (e.g.
71/394 × 365 = 66 days). Although it may be realistic to assume that the current average collection period may be
maintained in future it is possible that it could deteriorate if, for example, new customers taken on to launch the new
product are not as credit worthy as the existing customer base.
■ The number of days sales in inventory at each balance sheet date is 66, 88, 66 and 65 days respectively (e.g. 50/278
× 365 = 66 days). The reason for the increase to 88 at the end of the first quarter must be established and
management’s assertion that 66 days will be re-established as the ‘norm’ corroborated.
■ As the $42,000 movement on retained earnings from 2007 to 2008 is the earnings before income tax for 2008 it may
be that there is no tax in 2008 or that tax effects have not been forecast. (However, some deferred tax effect might be
expected if the investment in new plant and equipment is likely to attract accelerated capital allowances.)

第21题：

(b) Describe the principal audit procedures to be carried out in respect of the following:

(i) The measurement of the share-based payment expense; (6 marks)

正确答案：
(b) (i) Principal audit procedures – measurement of share-based payment expense
– Obtain management calculation of the expense and agree the following from the calculation to the contractual
terms of the scheme:
– Number of employees and executives granted options
– Number of options granted per employee
– The official grant date of the share options
– Vesting period for the scheme
– Required performance conditions attached to the options.
– Recalculate the expense and check that the fair value has been correctly spread over the stated vesting period.
– Agree fair value of share options to specialist’s report and calculation, and evaluate whether the specialist report is
a reliable source of evidence.
– Agree that the fair value calculated is at the grant date.
Tutorial note: A specialist such as a chartered financial analyst would commonly be used to calculate the fair value
of non-traded share options at the grant date, using models such as the Black-Scholes Model.
– Obtain and review a forecast of staffing levels or employee turnover rates for the duration of the vesting period, and
scrutinise the assumptions used to predict level of staff turnover.
– Discuss previous levels of staff turnover with a representative of the human resources department and query why
0% staff turnover has been predicted for the next three years.
– Check the sensitivity of the calculations to a change in the assumptions used in the valuation, focusing on the
assumption of 0% staff turnover.
– Obtain written representation from management confirming that the assumptions used in measuring the expense
are reasonable.
Tutorial note: A high degree of scepticism must be used by the auditor when conducting the final three procedures
due to the management assumption of 0% staff turnover during the vesting period.

第22题：

(ii) From the information provided above, recommend the matters which should be included as ‘findings

from the audit’ in your report to those charged with governance, and explain the reason for their

inclusion. (7 marks)

正确答案：
(ii) Control weakness
ISA 260 contains guidance on the type of issues that should be communicated. One of the matters identified is a control
weakness in the capital expenditure transaction cycle. The assets for which no authorisation was obtained amount to
0·3% of total assets (225,000/78 million x 100%), which is clearly immaterial. However, regardless of materiality, the
auditor should ensure that the weakness is brought to the attention of the management, with a clear indication of the
implication of the weakness, and recommendations as to how the control weakness should be eliminated.
The auditor is providing information to help those charged with governance improve the internal systems and controls
and ultimately reduce business risk. In this case there is a high risk of fraud, as the lack of authorisation for purchase
of office equipment could allow expenditure on assets not used for bona fide business purposes.
Disagreement with accounting treatment of brand
Audit procedures have revealed a breach of IAS 38 Intangible Assets, in which internally generated brand names are
specifically prohibited from being recognised. Blod Co has recognised an internally generated brand name which is
material to the statement of financial position (balance sheet) as it represents 12·8% of total assets (10/78 x 100%).
The statement of financial position (balance sheet) therefore contains a material misstatement.
The report to those charged with governance should clearly explain the rules on recognition of internally generated brand
names, to ensure that the management has all relevant technical facts available. In the report the auditors should
request that the financial statements be corrected, and clarify that if the brand is not derecognised, then the audit opinion
will be qualified on the grounds of a material disagreement – an ‘except for’ opinion would be provided. Once the breach
of IAS 38 is made clear to the management in the report, they then have the opportunity to discuss the matter and
decide whether to amend the financial statements, thereby avoiding a qualified audit opinion.
Audit inefficiencies
Documentation relating to inventories was not always made readily available to the auditors. This seems to be due to
poor administration by the client rather than a deliberate attempt to conceal information. The report should contain a
brief description of the problems encountered by the audit team. The management should be made aware that
significant delay to the receipt of necessary paperwork can cause inefficiencies in the audit process. This may seem a
relatively trivial issue, but it could lead to an increase in audit fee. Management should react to these comments by
ensuring as far as possible that all requested documentation is made available to the auditors in a timely fashion.

第23题：

问答题

Test 12　　Friendship is forever a topic for human beings. How do you view “friendship”?　　Write on ANSWER SHEET TWO a composition of about 200 words on the following topic:FRIENDSHIP　　You are to write in three parts.　　In the first part, state specifically what your idea is.　　In the second part, provide one or two reasons to support your idea OR describe your idea.　　In the last part, bring what you have written to a natural conclusion or a summary.　　Marks will be awarded for content, organization, grammar and appropriateness. Failure to follow the instructions may result in a loss of marks.

正确答案：
【参考范文】
Friends are indispensable in our daily life. When we feel happy, we can share the pleasure with them; when we feel gloomy, friends will comfort us; when we have some secrets, we just want to share them with friends; and when we have difficulties, friends are always ready to help us.
Life is a bouquet, friendship is flower. We cannot live without friendship just as we cannot survive without air or water. Friendship gives us a feeling of security and warmth; friendship encourages us to go ahead when we encounter difficulty.
Building friendship takes time. True friendship requires equality and loyalty. It is an in-depth relationship combining trust, support, understanding, empathy and intimacy. True friendship should be able to stand all kinds of tests. Just as an old saying goes, “A friend in need is a friend indeed.”
In conclusion, we must treasure our friends and friendship. A good friend can be a good companion in our lives. The more friends we have, the more help we can get from them and the more pleasure we can share with them. If we have true friends, we will feel happy in the world.

解析：暂无解析

(b) Describe the principal matters that should be included in your firm’s submission to provide internal auditservices to RBG. (10 marks)

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