Implementing Audit

Procedures
(International Stream)
Monday 8 December 2008

Time allowed
Reading and planning:
Writing:

15 minutes
3 hours

ALL FOUR questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper T8 (INT)

Certified Accounting Technician Examination
Advanced Level

4. The buyer is then required to contact potential suppliers of the approved acquisitions to obtain confirmation of availability. (5 marks) (25 marks) 2 . He reviews this against his copy of the budget. describe its contents and state how it should be used by a company. The company employs only one buyer who reports directly to the managing director. 2. In December the directors and the buyer meet again to formalise and approve the tangible non-current asset expenditure budget. 6. (6 marks) (c) Explain the purpose of a tangible non-current assets register. prior to authorising as appropriate and forwarding to the accounts department for payment of the bonus as part of the buyer’s monthly salary. Its board comprises four directors. As part of his remuneration package. (4 marks) (b) With regard to the tangible non-current assets acquisition system of Ruby Co: (i) Identify FOUR weaknesses in the system. which he signs. the buyer is entitled to bonus payments equating to 10% of any saving he can negotiate on budgeted costs. Following the meeting. The buyer normally places orders to purchase by a simple e-mail message. Required: (a) State FOUR objectives of the internal controls that should be exercised over the acquisition of tangible non-current assets. without prior consultation the buyer places orders with suppliers ensuring that assets are acquired in the month as budgeted. Ruby Co exercises the following controls over the acquisition of tangible non-current assets: 1. expected month of purchase and budgeted cost as obtained by the buyer. Consequently assets may not necessarily be purchased from the suppliers contacted by the buyer for budgeting purposes.ALL FOUR questions are compulsory and MUST be attempted 1 Ruby Co produces kitchen units from factory premises. At the end of the meeting an agreed list of acquisitions is approved and a copy is retained by all attendees. In October the directors and the buyer meet to discuss the tangible non-current asset requirements of each functional area. there being a managing director and directors of sales. 5. Throughout the new year. production and finance & administration. and (6 marks) (iii) Recommend improvements to address the weaknesses. and the lowest price for inclusion in the company’s tangible non-current assets expenditure budget for the forthcoming year. a schedule is produced detailing approved acquisitions by category. and prepares annual financial statements to 31 December. (4 marks) (ii) Describe the implications of each weakness identified. the buyer calculates his bonus entitlement and forwards a copy of the calculation together with a copy of the order documentation to the managing director. However where required by suppliers he provides orders by way of a letter. The schedule then forms the basis of the tangible non-current assets expenditure budget of Ruby Co for the forthcoming year. 3. Having placed an order. on a monthly basis.

is a book publishing company and there are in excess of 300 accounts in its trade receivables ledger. which houses ancillary production and administration buildings. (10 marks) (b) List THREE audit objectives of your firm’s attendance at the physical inventory count of Emerald Co on 31 January 2009.T. (3 marks) (e) Prepare a draft positive circularisation letter to be forwarded with customer statements to the selected customers of Opal Co. Your first task is to prepare a draft positive circularisation letter for review. (3 marks) (c) Comment on the extent to which results from a negative circularisation may be relied upon to verify the existence of year-end receivable balances and contrast this to the reliability of the results received from a positive circularisation. Your audit senior has selected the customer account balances for inclusion in the circularisation. (3 marks) (c) State EIGHT key procedures that members of your firm should carry out when attending the inventory count of Emerald Co on 31 January 2009. Although it maintains inventory records throughout the year. Emerald Co relies on a physical count as a basis for the inclusion of an inventory value in its annual financial statements. with annual sales exceeding $80 million. (6 marks) (25 marks) 3 [P. Opal Co. approval and subsequent forwarding together with customer statements. it builds four fully equipped and furnished yachts annually. As the company’s auditors. your firm is now planning for attendance at the year-end inventory count on 31 January 2009. (8 marks) (d) State with reasons who should forward the circularisation letters to the customers of Opal Co. (12 marks) (25 marks) 3 Your firm Penn & Company has assigned you to the audit of the trade receivables of Opal Co for its financial year ended 30 November 2008. with total balances outstanding of $960. Required: (a) Identify and explain FOUR inherent risks associated with the inventory and work-in-progress of Emerald Co. Your tasks include the organisation of a trade receivables circularisation in respect of balances as at that date. The company’s operations are based in a large dockside yard. (5 marks) (b) Explain the difference between a negative circularisation and a positive circularisation. Typically.O. Required: (a) Explain how your audit senior should have selected the sample of account balances for inclusion in the circularisation.2 Emerald Co builds luxury yachts on a ‘made to order’ basis for a worldwide client base. .000 as at 30 November 2008. Consequently the manager responsible for the audit has reviewed the adequacy of the inventory count instructions and is satisfied with them.

Whilst reading the auditors’ report. (3 marks) (25 marks) End of Question Paper 4 . it would be reasonable for us to expect the auditors to confirm whether the accounts are correct and error free. ‘What are the differences between external auditors and internal auditors?’ 2. ‘The term true and fair is meaningless audit jargon. the following statements were made by the various directors: 1.’ Required: (a) Explain the differences between external and internal auditors. For the fee they charge us. (9 marks) (c) (i) Explain the purpose of a letter of representation and describe the circumstances in which auditors should seek such a letter from the management of an audit client.4 The board of directors of Topaz Co met recently to discuss the company’s audited annual financial statements. the sales director enquired. in readiness for the company’s forthcoming annual general meeting. the technical director stated.’ 3. Recalling that the managing director and financial director had signed a letter of representation in connection with the audited financial statements. At the board meeting. (5 marks) (ii) Describe the actions auditors should take if management refuses to provide them with written representations. (8 marks) (b) Explain why the production director’s comments about ‘true and fair’ and his expectation of the auditors are unreasonable. the production director commented. Noting that the company’s auditors had recommended that the company should have an internal audit department. ‘I still don’t understand the purpose of that letter.