Q1 Ultimo - marking Guide – 50 Marks

a) Evaluation of audit risks

Up to 3 marks per risk assessed

2 marks for calculating the materiality range

1 mark for selecting AND justifying a materiality level

½ mark for basic calculations (% changes) (must be discussed)

1 mark for analytical procedures / advanced calculations (must be discussed)

(capped at 4 marks for calculations)

- First year audit (max 2 marks)

- Grant
- Investments in equity instruments
- Newly listed
- Treatment of research expenditure
- License to trade
- Bonus scheme - provision
- Revenue recognition relating to services paid by drivers, agent vs
principal
Max 24

b) Additional information to allow a more detailed analytical review to

be performed

½ mark per matter identified, ½ marks per detailed explanation linking

to the scenario information:

- Revenue by country to identify significant trends

- Gross and net fee details
- Cost of sales by category
- Operating expenses by category
- Bonus scheme terms
- Statement of financial position to identify key movements on assets
and liabilities
- Loan liability details and interest rates
- Details of Ultimo’s accounting policies
- Further information in relation to the revoked licence
- Cash flow forecast
Max 4
c) Audit procedures
Generally, one mark for each well explained audit procedure:

(i) Bonus scheme

Bonus scheme details including:

- staff included (contracts / HR records)
- bonus rates
- date of payment
- need to remain employed to be paid
- claw-back mechanisms

- Board minutes (approval)

- Staff pay details per HR records
- Recalculate
Max 5
d) Evaluation of ethical and professional issues and actions to take
Up to 1 mark for each relevant point of discussion/explanation:

Legal case – ethical issues

- Management integrity
- Reputation damage

Legal case – actions

- Less reliance on management reps
- Ethics partner + consider resigning

New systems – ethical issues

- Advice on new systems is a non-assurance service to an audit client
- Gives rise to a self-review threat and risk of taking on management
responsibility
- Advice on new systems should not be given where systems form
significant part of internal control over financial reporting

New systems - actions

- Risk increased because Ultimo is a listed entity, service should not be
provided

Bank meeting – ethical issues

- Advocacy threat
- Legal implication for the firm if the partner ‘confirms’ work performed
(duty of care to bank)

Bank meeting - actions

- Partner should not attend the meeting with the bank
- Matters and reasons for declining the services should be discussed with Max 7
the audit committee
 Max 10
Professional marks

Communication
– Briefing note format and structure – use of headings/sub-headings and an
introduction
– Style, language and clarity – appropriate layout and tone of briefing notes,
presentation of materiality and relevant calculations, appropriate use of the
CBE tools, easy to follow and understand
– Effectiveness and clarity of communication – answer is relevant and tailored
to the scenario
– Adherence to the specific requests made by the audit engagement partner
(analytical procedures included……no discussion of forex)

Analysis and evaluation

– Appropriate use of the information to determine and apply suitable specific
calculations which are relevant to the scenario
– Effective prioritization of the results of the evaluation of audit risks to
demonstrate the likelihood and magnitude of risks and to facilitate the
allocation of appropriate responses.

Professional scepticism and professional judgement

– Determination and justification of a suitable materiality level, appropriately
and consistently applied (MUST APPLY THROUGHOUT THE QUESTION)
– Identification and recognition of a possible and valid management bias
indicator, with the consideration of the impact on the financial statements and
the possible reasons for management’s preference for certain accounting
treatments
– Effective application of technical and ethical guidance to assess the ethical
issues

Commercial acumen

– Using the information in the scenario to evaluate the magnitude of risks

- Actions for the auditor commercially valid and relevant to the planning phase
of the audit
Q2 Warren Group – 25 Marks

1 mark per well explained point.

1 mark per materiality calculation and comment (max 1 per scenario).
½ mark for other relevant calculations (must comment to earn credit)

Audit of trade receivables

- $1,700k material vs PBT/assets OR $2,500 material vs assets
- 4 months after year end (expect to have been paid)
- Lack of support from finance team
- Written representations necessary but not sufficient
- Confirmations helpful but needs further support (why unpaid after 4
months?)
- Provide for the debt (credit SFP debt SPL)
- Obtain bank statements 16th October to 1st November
- Report to management / TCWG
- Material, not pervasive - isolated to receivables
- Impact on opinion (disagreement - provision required - lack of sufficient
appropriate evidence)
- Basis of qualified opinion - explain the issue
Max 7
Ex-employee lawsuit
- $8m is 119.7% of PBT, material and pervasive
- Past event, reliably measurable, unlikely to succeed
- Treatment appears to be correct
- Independent legal opinion
- Obtain original claim
- Review post year-end legal correspondence
- NOCLAR responsibilities
- Read note to confirm that it is complete and accurate
- No adjustment required (1/2 mark)
- An Emphasis of Matter paragraph + draw attention to the correct
disclosure
- State that the opinion is unmodified
Max 6
Government Project
- $5m is material (74.6% of PBT)
- Considers revenue
- Management imposed lack of evidence
- Auditor should request that management removes the limitation
- Communication of potential impact to Those Charged with Governance
- Auditor bound by confidentiality
- Share with audit partner only
- Impact on continuation of audit engagement
- If limitation is not removed, audit opinion will be modified
- Matter is material but not pervasive (isolated)
- Qualified opinion
- Basis for qualified opinion paragraph Max 7
Professional marks

Analysis and evaluation

– Appropriate assessment of the information to support discussion, draw
appropriate conclusions and design appropriate responses
– Effective appraisal of the information to make suitable recommendations for
courses of action which are appropriate for the stage of the audit process
- Balanced assessment of the information to determine the appropriate audit
opinion in the circumstances

Professional scepticism and professional judgement

– Effective challenge of information, evidence and assumptions
– Evaluates the pervasiveness of the misstatements

Commercial acumen
– Demonstrates commercial awareness regarding the practicality of suggested Max 5
actions
Q3 Lestrange group marking Scheme – 25 marks

a) Quality control, ethical and other professional matters

1 mark for each matter evaluated:

- Manager performing EQCRs

- Juniors work not reviewed (inventory)
- Time pressure
- Familiarity threat – Finance Director and Audit Partner relationship
- Self-interest threat – bonus offered to audit team
- Integrity – manager changing sample
- Junior not supervised/directed appropriately
- Management threat – advising on SBP accounting
- Professional competence – FC unsure of SBP accounting
- Self-review – SBP advice
- Intimidation – junior changed sample / no work over SBP
- SBP scheme – management competence
- SBP scheme – insufficient evidence obtained
- CL and payroll – inappropriate audit approach
Max 10
b) i) Planning the forensic investigation

1 mark for each planning matter identified and explained

Matters to consider:
- Duty of care – insurance company
- Format of report
- Fees
- Deadlines
- Resource availability (staff)
- Police involvement (confidentiality)

Planning steps
- Develop an understanding of the events surrounding the theft
- Meet with the client to discuss the investigation
- Agree output of investigation
- Confirm access to necessary information Max 5

(ii) Procedures

1 mark for each specific procedure recommended (procedure + explanation)

- Analytical procedures – other sales reps involved

- New customers – confirm genuine (companies house), contact customers
- Sales made by the rep – customer confirmations
- Obtain all of the claims made by the sales representative since January 2021
and total the amount of claims
- Analytical procedures – other credit controllers
- Enquire with management when the fraud was first identified and what
measures were taken by the Group
- Assess controls – other opportunities for fraud
- Quantify the fraud value Max 5
Professional marks

Analysis and evaluation

– Appropriate assessment of the issues in relation to audit quality, using
examples where relevant to support overall comments
- Appropriate assessment of the ethical and professional issues raised, using
examples where relevant, to support overall comments

Professional scepticism and professional judgement

- Demonstration of the ability to probe for further information in order to
quantify the fraud
– Appropriate recommendations and justification of the procedures to be
undertaken in respect of the fraud

Commercial acumen
- Demonstration of commercial awareness by recognising wider issues which
may affect the firm or client Max 5