The assignment requires you to prepare answers to the following 4 questions.

The
assignment must be your own individual work. Therefore, it is critical that you provide
complete referencing for any sources of information you use in preparing your
assignment. This includes both in-text references and a list of references at the end of
your assignment.

Question 1: (Approximately 350 words)

Alice Riley is the partner in charge of the audit of Walterhugh Ltd, a large listed public
company. Alice took over the audit from Marjorie Platt, who has recently retired from the
audit firm. Marjorie was a very experienced auditor and the author of several reports into
ethical standards in business, but Alice did not regard her highly due to her inability to
grow non-audit service fee revenue for the audit firm. Alice sees an opportunity to
increase the provision of non-audit services to Walterhugh Ltd and thus increase her
reputation within the audit firm.
Required:
(a) Discuss the potential effects on Alices reputation in the audit firm if she is able to
increase the level of non-audit service fee revenue from Walterhugh Ltd. In your answer
you should refer to specific sections of APES 110.
(b) Which non-audit services would you advise Alice to avoid trying to sell to Walterhugh
Ltd because of their potential ethical issues for the audit firm? In your answer please
identify specific relevant sections of APES 110.
(c) Would it make any difference to your answers if Walterhugh Ltd was a proprietary
company, not a listed public company? Please explain your answer.

Question 2: (Approximately 500 words)

Analytical procedures can be an extremely powerful tool in identifying potential
problem areas in an audit. Analytical review can consist of trend and ratio analysis
and can be performed by comparisons within the same company or comparisons
across the industry. The following information shows the past two periods of results
for a company and a comparison with industry data for the same period:

Required:
(a) What are the advantages and limitations of comparing audit client data with industry
data during the planning stage of an audit?
(b) From the preceding data, identify five potential risk areas and explain why they
represent potential risk. Briefly indicate how the risk analysis should affect the planning
of the audit engagement, ie areas on which the audit should focus and specific audit
tests. You should present your answers in the following format:
Potential Risk Indicator:
Risk Analysis (ie why
Effect on audit planning
they represent potential
risk):

Question 3: (Approximately 500 words)

If a companys control risk is assessed as low and the auditor intends to rely on internal
controls, the auditor needs to gather evidence on the operating effectiveness of the
controls.
Required:
For each of the following internal control activities:
(a) indicate an audit procedure the auditor could use to test the operating
effectiveness of the control;
(b) provide an example of a potential fraud or error that could occur if the control
was not operating as expected;
(c) explain how the auditors substantive tests should be expanded to test for the
potential fraud or error.
Control activities:
a) All merchandise receipts are recorded on pre-numbered receiving slips. The
controllers department periodically accounts for the numerical sequence of the receiving
slips.
b) The accounts receivable bookkeeper is not allowed to issue credit memos for
returned goods or to approve the write-off of accounts receivables.
c) Employees are added to the payroll master file by the payroll department only after
receiving a written authorisation from the personnel department.
d) Edit tests built into the computerised payroll program prohibit the processing of weekly
payroll hours in excess of 53 for an individual employee.
e) A salesperson cannot approve a sales return or price adjustment that exceeds 6% of
the cumulative sales for the year for any one customer. The divisional sales manager
must approve any subsequent approvals of adjustments for such a customer.
You should present your answers in the following format:
Control:
(a) Test of control: (b) Potential fraud
or error

(c) Expanded
substantive tests:

Question 4: (Approximately 250 words)

Accounts payable is generally one of the larger and most volatile liability accounts to
audit. However, the auditor can use the assertion approach to develop an overall audit
program for accounts payable. Assume that you are auditing the accounts payable
account for Appleton Electronics, a wholesaler of hardware equipment. You can assume
that the company has good internal controls and is not designated as a high-risk audit
client. You have been the auditor for the client for a number of years. During the previous
audit, adjustments were made regarding accounts payable but none of them was
considered material.
Required:
(a) Identify the financial statement assertions that apply to accounts payable.
(b) For each assertion, identify two substantive audit procedures that would test the
assertion. You should present your answer in the following format:
Assertion:

Substantive audit procedures: