Professional Documents
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ACCA MOCK
Advanced AUDIT AND ASSURANCE
IPRO EDUCATION
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Question 1
You are a senior audit manager of ABC and Co. Chartered Certified Accountants. You
are responsible to overview and supervise audit and assurance engagements. You
have been recently asked to aid in annual audit of two organisations, AB society and
AB trust. AB society a not-for-profit organisation registered as a society under the
relevant company legislation. AB trust is a separate legal entity governed by the
board of the AB society that manages all the assets of the AB society. The
engagement partner, Mr. A, believes the audit manager in-charge of this
engagement does not have experience regarding group audits. He has written you
the following email:
Thank you!
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Background
AB society is managed by a board of 7 secretaries, only the managing secretary has
an executive function is the society, rest of the board members are non-executive.
The same board is governing the AB trust, however, all the secretaries are called
trustees and the managing trustee is same as the managing secretary of the
society.
The society and the trust both are being audited for the first time after their
incorporation in the 1980s, the reason for not being audited (prior to this years) is
that the societies and trusts having turnover below a certain threshold are not
required to be audited, in accordance with the local regulations.
AB society and AB trust both are new clients of the ABC and Co. The audit
manager has gone through the draft annual accounts made available to the audit
firm (refer to appendix). The management has told the manager that they do not
have any break-up of the investment property, they will prepare a property-wise
break-up by the time the audit team visits AB trust office.
The manager has also asked for all the significant policies of the companies but has
not yet received any. The manager believes that the companies are operating
without any approved significant policies, besides these policies the manager has
also realised that the AB trust is not registered with tax authorities (local
regulations require separate registration with tax authorities).
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Appendix
Draft annual accounts of AB Trust:
Statement of Financial Position 2015
GENERAL FUND $5,404,384
CURRENT LIABILITIES
-Security & Other Payables -
TOTAL FUNDS AND LIABILITIES $5,404,384
NON-CURRENT ASSETS
-Fixed Assets $1,086,317
CURRENT ASSETS
-Work in Progress $746,360
-Investment Property $3,166,673
-Advances, Deposits & Prepayments $2,010
-Cash & Bank Balance $403,024
TOTAL ASSETS $5,404,384
INCOME $194,034
EXPENDITURE
Salaries $2,500
POL $1,173
Utilities $2,207
Repair & Maintenance $6,581
TA/DA $754
Bank Charges $370
Vehicle Repair $341
Audit fee & Professional Charges $4,240
Executive Committee Meeting $2,287
Miscellaneous $2,439
Grants to AB society $40,239
Rent $10,425
Exchange (gain)/loss ($68)
Total Expenses ($73,488)
EXCESS OF INCOME OVER EXPENDITURE $120,546
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Required:
Respond to the instructions in the audit partner’s email.
(46 marks)
Note: The split of the mark allocation is shown in the partner’s email.
Professional marks will be awarded for the presentation of the briefing notes and
the clarity of the explanations provided.
(4 marks)
(50 marks)
Question 2
ZL is a local restaurant chain, you are the engagement partner of the audit firm Halo
and Co., in charge of overseeing the annual audit of this company.
The manager assigned to this assurance engagement has suddenly fallen sick and is
hospitalised. The other two audit managers are out of the country, you are left with
no other choice but to review the audit work performed by the audit team yourself.
The supervisor of this assignment has written a detailed email to you explaining
about the riskiest area of the audit and the work performed on it. According to the
supervisor the riskiest area of the entity, for the purpose of this audit, is HR cost.
The restaurant chain is in process of expanding and is engaged in the construction
of five more restaurants around the country.
You have gone through the audit files prepared by the audit team and are not
satisfied with the quality or the work or the documentation. You believe that the
audit team does not understand the importance of the audit documentation.
Revenue 8,500,000
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Required:
(a) Explain why HR is not the riskiest area for the audit. (8 marks)
(b) Explain the importance of properly documenting audit working. (5 marks)
(c) Comment on the sufficiency of work performed by the audit team on the
construction of new restaurants and recommend additional audit procedures
to help verify the balance appearing in this head. (12 marks)
(25 marks)
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Question 3
Hike Inc. is a multinational company facing high financing distress. The auditors
appointed to conduct the annual audit are not sure whether the company is a
going concern or not. The extracts of the financial statements with comparative
information are provided in Appendix 1.
The company is struggling due to high rivalry in the industry, the competition has
become very fierce and the entire top management has left the company, one by
one, and joined the competitions, who are offering more competitive salary
packages. Looking at the cash flows the operations are generating, Hike Inc. cannot
increase the salaries of the employees.
The management of Hike Inc. is also concerned about the litigation the company is
facing due to malfunction of some of its products.
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Required:
(a) Explain the three main areas of a company that should be evaluated to test
the going concern assumption. (5 marks)
(b) Evaluate the going concern assumption of Hike Inc. (20 marks)
(25 marks)
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