UGB 238 Audit and Assurance 2021
Learning outcomes
This assessment covers the following learning outcomes from the module:
Knowledge
1. An understanding of the nature and importance of auditing in society.
2. An understanding of the role and responsibilities of directors, auditors and others within
the corporate framework.
3. An understanding of the audit framework in the UK.
4. An understanding of the different types of audit and their roles in corporate governance.
5. An understanding of the global issues in audit and accounting.
Skills
. An ability to apply the key management accounting concepts and techniques in order to
contribute to successful decision making in an organisation.
Key Information
Length:
3,000 words overall – (plus or minus 10%)
Format:
Report
Weighting:
100% of the marks for the module
Students are required to submit their assignments through Turnitin on Canvas. Only assessments
submitted through Canvas will be marked.
Requirements: You must answer ALL questions.
Assignment Brief:
Please note that this is an individual assignment and the policy of the University on
“Policy on Cheating, Collusion and Plagiarism” applies.
Please write your Lecturer’s name clearly on the front of the assignment.
Question 1.
It has been suggested that the most important matter affecting the credibility of the auditor
is that of ‘independence’.
Required
(a)
Discuss, giving examples, matters other than independence, which might be relevant
in relation to the credibility of the auditor and steps that the accounting profession has taken
or might take in relation to them. (10marks)
(b)
Discuss the following situations in the context of the independence of the auditor,
showing clearly the principles involved:
(i) The audit manager in charge of the audit assignment of Andrew Co holds 1,000 £1 ordinary
shares in the company (total shares in issue – 100,000). The audit partner holds no shares.
(5marks)
(ii)
The audit fee receivable from Janet Co, a private company is £100,000. The total fee
income of the audit firm is £700,000. (5marks)
(iii)
The audit senior in charge of the audit of Margot Bank Co has a personal loan from the
bank of £2,000 on which she is currently paying 13% interest. (5marks)
(iv)
The audit partner is responsible for two audit assignments, Harry Co and Jean Co.
Harry Co has recently tendered for a contract with Jean Co for the supply of material
quantities of goods over a number of years. Jean Co has asked the audit partner to advise on
the matter. (5Marks)
(c) Explain the concept of objectivity, with reference to
(i) External auditors
(ii)
Internal auditors, who are members of ACCA, outlining any general
threats to objectivity that exist (8marks)
(iii) Scenario 1
Bakers Co is an audit client of Hinkley Innes, a firm of Chartered Certified Accountants. The
firm has had the audit of Bakers for 17 years and the fee represents 7% of firm income. Bakers
is considering a major new project and has asked the firm if it would be happy to undertake
some one-off consultancy work for the firm. It is possible that the fee income for this contract
would represent 10% of that year’s income for Hinkley Innes. The new business services
partner, who heads up a new division of the firm, is keen to take on the work, as this would
represent his best contract yet.
Scenario 2
Peter works in the purchasing department of Murphy Manufacturing Co. He has been
instrumental in setting up control systems in the purchasing department as part of a recent
risk management exercise. He has a poor relationship with his immediate supervisor, the
Purchasing Director. Murphy Manufacturing has just advertised the post of trainee internal
auditor. Peter is interested in the work that internal audit do, having liased substantially with
the department during the recent controls exercise. No formal accountancy qualifications are
required for the post, because the successful candidate will be put through accountancy
training. Peter has had a chat with the head of internal audit concerning the post and is
seriously considering making an application.
Required
Discuss the threats and the safeguards to objectivity that could be implemented in the two
situations given above. (12marks)
Question 2.
John and Jane Co (John and Jane) is a computer hardware specialist and has been trading for
over five years. The company is funded partly through overdrafts and loans and also by several
large shareholders; the year end is 30 April 2014. John and Jane has experienced significant
growth in previous years; however, in the current year a new competitor, Drums Design Co
(Drums), has entered the market and through competitive pricing has gained considerable
market share from John and Jane. One of John and Jane’s larger customers has stopped
trading with them and has moved its business to Drums. In addition, a number of John and
Jane’s specialist developers have left the company and joined Drums. John and Jane has found
it difficult to replace these employees due to the level of their skills and knowledge. John and
Jane has just received notification that its main supplier who provides the company with
specialist electrical equipment has ceased to trade. John and Jane is looking to develop new
products to differentiate itself from the rest of its competitors. It has approached its
shareholders to finance this development; however, they declined to invest further in John
and Jane. John and Jane’s loan is long term and it has met all repayments on time. The
overdraft has increased significantly over the year and the directors have informed you that
the overdraft facility is due for renewal next month, and they are confident it will be renewed.
The directors have produced a cash flow forecast which shows a significantly worsening
position over the coming 12 months. They are confident with the new products being
developed, and in light of their trading history of significant growth, believe it is unnecessary
to make any disclosures in the financial statements regarding going concern.
At the year end, John and Jane received notification from one of its customers that the
hardware installed by John and Jane for the customers’ online ordering system has not been
operating correctly. As a result, the customer has lost significant revenue and has informed
John and Jane that they intend to take legal action against them for loss of earnings. John and
Jane has investigated the problem post year end and discovered that other work-in-progress
is similarly affected, and inventory should be written down. The finance director believes that
as this misstatement was identified after the year end, it can be amended in the 2015 financial
statements.
Required
(a) Describe the procedures the auditors of John and Jane Co should undertake in relation to
the uncorrected inventory misstatement identified above. (4 marks)
(b) Explain SIX potential indicators that John and Jane Co is not a going concern. (6 marks)
(c) Describe the audit procedures which you should perform in assessing whether or not John
and Jane Co is a going concern. (6 marks)
(d) The auditors have been informed that John and Jane’s bankers will not make a decision on
the overdraft facility until after the auditor’s report is completed. The directors have now
agreed to include some going concern disclosures.
Required
Describe the impact on the auditor’s report of John and Jane Co if the auditor believes the
company is a going concern but that this is subject to a material uncertainty. (4 marks) (Total
= 20 marks)
Question 3.
Peter Cola Co (Peter) manufactures fizzy drinks such as cola and lemonade as well as other
soft drinks and its year end is 30 September 20X5. You are an audit manager of Totti & Co and
are currently planning the audit of Peter. You attended the planning meeting with the audit
engagement partner and finance director last week and the minutes from the meeting are
shown below. You are reviewing these as part of the process of preparing the audit strategy
document.
Minutes of planning meeting for Peter.
Peter’s trading results have been strong this year and the company is forecasting revenue of
£85 million, which is an increase from the previous year. The company has invested
significantly in the cola and fizzy drinks production process at the factory. This resulted in
expenditure of £5 million on updating, repairing and replacing a significant amount of the
machinery used in the production process.
As the level of production has increased, the company has expanded the number of
warehouses it uses to store inventory. It now utilises 15 warehouses; some are owned by
Peter and some are rented from third parties. There will be inventory counts taking place at
all 15 of these sites at the year end.
A new accounting general ledger has been introduced at the beginning of the year, with the
old and new systems being run in parallel for a period of two months. In addition, Peter has
incurred expenditure of £4·5 million on developing a new brand of fizzy soft drinks. The
company started this process in July 20X4 and is close to launching their new product into the
marketplace.
As a result of the increase in revenue, Peter has recently recruited a new credit controller to
chase outstanding receivables. The finance director thinks it is not necessary to continue to
maintain an allowance for receivables and so has released the opening allowance of £1·5
million.
The finance director stated that there was a problem in April in the mixing of raw materials
within the production process which resulted in a large batch of cola products tasting
different. A number of these products were sold; however, due to complaints by customers
about the flavour, no further sales of these goods have been made. No adjustment has been
made to the valuation of the damaged inventory, which will still be held at cost of £1 million
at the year end.
As in previous years, the management of Peter is due to be paid a significant annual bonus
based on the value of year-end total assets.
Required
(a) Explain audit risk and the components of audit risk. (5 marks)
(b) Using the minutes provided, identify and describe SEVEN audit risks, and explain the
auditor’s response to each risk, in planning the audit of Peter Cola Co. (14 marks)
(c) Identify the main areas, other than audit risks, which should be included within the audit
strategy document for Peter Cola Co; and for each area provide an example relevant to
the audit. (4 marks)
The finance director has requested that the deadline for the 20X6 audit be shortened by a
month and has asked the audit engagement partner to consider if this will be possible. The
partner has suggested that in order to meet this new tighter deadline the firm may carry out
both an interim and final audit for the audit of Peter to 30 September 20X6.
Required
(d) Explain the difference between an interim and a final audit. (3 marks)
(e) Explain the procedures which are likely to be performed during an interim audit of Peter
and the impact which it would have on the final audit. (4 marks)
(30 marks)
Assessment Criteria
Categories
Grade
Relevance
Knowledge
Analysis
Argument and
Critical Evaluation
Presentation
Reference to Literature
Structure
86 –
100%
76-85%
70 –
75%
The work examined is exemplary and provides clear evidence of a complete grasp of the knowledge, understanding and skills appropriate to the Level
of the qualification. There is also ample excellent evidence showing that all the learning outcomes and responsibilities appropriate to that Level are
fully satisfied. At this level it is expected that the work will be exemplary in all the categories cited above. It will demonstrate a particularly compelling
evaluation, originality, and elegance of argument, interpretation or discourse.
The work examined is outstanding and demonstrates comprehensive knowledge, understanding and skills appropriate to the Level of the qualification.
There is also excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are fully satisfied. At this level it is
expected that the work will be outstanding in the majority of the category as cited above or by demonstrating particularly compelling evaluation and
elegance of argument, interpretation or discourse.
The work examined is excellent and is evidence of comprehensive knowledge, understanding and skills appropriate to the Level of the qualification.
There is also excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are satisfied. At this level it is
expected that the work will be excellent in the majority of the categories cited above or by demonstrating particularly compelling evaluation and
elegance of argument, interpretation or discourse.
60 –
69%
Directly relevant
to the
requirements of
the assessment
Good analysis,
A substantial
knowledge of
clear and
relevant material, orderly
showing a clear
grasp of themes,
Generally coherent and
logically structured,
using an appropriate
mode of argument
and/or theoretical
mode(s)
May contain some
distinctive or
independent
thinking; may begin
to formulate an
independent
Well written, with Critical appraisal of upstandard spelling
to-date and/or
and grammar, in a
appropriate literature.
readable style
Recognition of different
perspectives.
Very good use of
questions and
position in relation
with acceptable
source material. Uses
issues therein
to theory and/or
practice.
format
a range of sources
Some attempt
Adequate
Some analytical
Some attempt to
Sound work which
Competently
Uses a variety of
50 –
to address the
knowledge of a
treatment, but
construct a coherent
expresses a
written, with
literature which
59%
requirements of
fair range of
may be prone
argument, but may
coherent position
only minor lapses
includes some recent
the assessment:
relevant
to description,
suffer loss of focus and
only in broad terms
from standard
texts and/or
may drift away
material, with
or to narrative,
consistency, with issues
and in uncritical
grammar, with
appropriate literature,
from this in less
intermittent
which lacks
at stake stated only
conformity to one
acceptable
though not necessarily
focused
evidence of an
clear analytical
vaguely, or theoretical
or more standard
format
including a substantive
passages
appreciation of
Purpose
mode(s) couched in
views of the topic
amount beyond library
its significance
40 –
49%
simplistic terms
texts. Competent use of
source material.
Some correlation Basic
with
understanding of
Largely
descriptive or
A basic argument is
evident, but mainly
Some evidence of a
view starting to be
A simple basic
style but with
Some up-to-date and/or
appropriate
the
the subject but
narrative, with
supported by assertion
formed but mainly
significant
literature used. Goes
requirements of
addressing a
little evidence
and there may be a
derivative.
deficiencies in
beyond the material
the assessment
limited range of
of analysis
lack of clarity and
expression or
tutor has provided.
but there is a
material
coherence
format that may
Limited use of sources
significant degree
of
irrelevance
pose obstacles for to support a point.
the reader
Weak use of source
material.
35 –
39%
Relevance to the
requirements of
the assessment
may be very
intermittent, and
may be reduced
to its vaguest and
least challenging
terms
A limited
understanding of
a narrow range of
material
Heavy
dependence on
description,
and/or on
paraphrase, is
common
Little evidence of
coherent argument:
lacks development and
may be repetitive or
thin
Almost wholly
Numerous
derivative: the
deficiencies in
expression and
presentation; the
writer may
achieve clarity (if
at all) only by
using a simplistic
or repetitious
style
writer’s
contribution rarely
goes beyond
simplifying
paraphrase
Barely adequate use of
literature. Over reliance
on material provided by
the tutor.
The evidence provided shows that the majority of the learning outcomes and responsibilities appropriate to that Level are satisfied.
30 –
34%
15-29%
The work examined provides insufficient evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The
evidence provided shows that some of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in
some of the indicators.
The work examined is unacceptable and provides little evidence of the knowledge, understanding and skills appropriate to the Level of the
qualification. The evidence shows that few of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak
in several of the indicators.
0-14%
The work examined is unacceptable and provides almost no evidence of the knowledge, understanding and skills appropriate to the Level of the
qualification. The evidence fails to show that any of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be
weak in the majority or all of the indicators.
