Question 1(15 marks) Today the worlds largest companies in all sectors and regions disclose their sustainability performance and impacts to some degree. The KPMG Survey of Corporate Respon

Question 1(15 marks)
Today the worlds largest companies in all sectors and regions disclose their sustainability performance and impacts to some degree. The KPMG Survey of Corporate Responsibility Reporting 2013 concluded that Almost all of the worlds largest 250 companies report on Corporate Responsibility (CR) and that Reporting is now the norm across all these sectors with at least 62% of companies in every sector producing a (CR) report
Source: (Global Reporting Initiative 2015 Sustainability and Reporting Trends in 2025 Preparing for the Future)https://www.globalreporting.org/resourcelibrary/Sustainability-and-Reporting-Trends-in-2025-1.pdf
Required:Conduct an internet search for one (1) ASX listed company that issues a sustainability report and:(a) provide a summary of the structure and contents of the companys disclosures including the guidelines used by the company in preparing their report. (4 marks)(b) indicate if the report has been audited or reviewed by an auditor and the type of assurance they have provided. (3 marks)(c) Identify four (4) areas in addition to sustainability reporting where auditors now provide assurance. (4 marks)(d) Briefly describe two (2) of the areas identified in c) and the auditors role in these areas. Include any issues or difficulties faced by the auditor in your response. (4 marks)
Question 2 (15 marks)
Jerry is an audit partner in a local office of a large regional accounting firm. One of Jerrys biggest clients is Thunderbolt Ltd. – a company which undertakes major property development projects. Thunderbolt is also a large employer in the local community. Until last year Thunderbolt had been very profitable but the economic downturn has started to have a detrimental impact. Jerry is preparing for the final audit meeting with the client. At this meeting there will be discussions about the main findings and any adjustments which are required to be made to the accounts. One major issue with the audit was lingering doubts over Thunderbolts status as a going concern. Thunderbolt was coming close to violating its loan contracts which required it to maintain a current ratio of 1.7:1. This issue has caused Jerry many sleepless nights of late Jerry likes the people who run Thunderbolt and is well aware of the negative impact that its closure would have on the local community. Jerry is also aware that Thunderbolt’s violation of loan terms would most likely have a negative impact on his own immediate career prospects.
Thunderbolts year-end was 30 June but Jerrys firm carried out most of its work during February. At that time all of the projections looked fine however recently Jerry noticed that one of Thunderbolts major customers Deciduous Ltd had been placed into administration. At year-end Deciduous owed Thunderbolt $1.8 million. If this amount were to be written off Thunderbolt would be breaching its loan contracts. While Jerry was aware that Deciduous was disputing the amount due (such tactics were common in the property development industry) he fully expected that the vast majority of the sum owed would be paid. This is now all in doubt.
At the meeting with the client Jerry asks whether any provision had been created in relation to the amount due from Deciduous or whether any updates to the projections originally audited in February had been made. Darryl Thunderbolts Chief Executive advises Jerry that he does not believe this will be necessary. Darryl informs Jerry that the administrator of Deciduous has advised him that Deciduous will be able to meet all of its outstanding debts. Jerry advises Darryl that he hopes this is will be the case but he will need to obtain assurances from the administrator directly. Darryl asks why this is necessary as he is happy to give Jerry a letter to this effect. Jerry advises Darryl that he has to do his job.
Darryl reacts to this angrily shouting: Jerry you have been our auditor for years and at the first sign of trouble you appear willing to help the bank shut our doors the effect of which will be a disaster for the local community and also for your firm. Many of your neighbours work for this company what will they think? What will their children think? This will impact on your own children at school. All we are asking for is time to let us trade out of this situation. As far as I am concerned the accounts will not be altered. You can do as you wish however remember what I have told you local communities need businesses like ours. I will let them know who caused the closure of this business if thats what it comes to!
Required:Use the AAA model to recommend a course of action for Jerry (15 marks)
Question 3 (35 marks)
Your firm has just been appointed auditor of Gravel Manufacturing Ltd. and you are planning for your first audit the year ending 30 June 2016. Gravel Manufacturing is a manufacturer of electronic smoke alarms and electronic security systems and is part of the broader electronics industry. Their operations consist of a head office and factory in the Sydney suburb of Alexandria. They have distribution outlets in each major Australian city and sales agents throughout South East Asia the UK and USA. There has been a large amount of capital expenditure on the Sydney factory over the past two years. Your research shows that the smoke alarm and security industry is highly volatile and competitive with heavy discounting by competitors and a prevalence of lower quality products. The industry is also affected by changes in technology government regulations and health and safety legislation in each of the different areas in which the company operates. In discussions with the Sydney productions manager Mr Ye you discover he has a difficult job ascertaining production levels in a volatile market and he is often concerned at inventory fluctuations caused by over or under production of alarm and security systems.
Gravel Manufacturing operates a senior management incentive scheme where senior executives are allocated a percentage of net profit after tax. Gravel also has a long term mortgage loan with a foreign bank that requires them to maintain certain financial ratios. Breach of any of the loans will result in the bank calling in the loan within 24 hours. The requirements are that the current asset ratio must be greater that 1.5:1 and the quick asset ratio must be greater than 0.8:1.
Income Statement
30/6/2016
30/6/2015
30/6/2014
$(000)
$(000)
$(000)
Sales
27740
25280
22936
Less: Cost of goods sold
20104
20800
18200
Gross Profit
7636
4480
4736
Interest expense
500
260
240
Other expenses
460
1580
2040
Profit Before Tax
6676
2640
2456
Income tax expense
1520
1100
800
Profit After Tax
5156
1540
1656
Balance Sheet
Current Assets
Cash
100
0
1600
Receivables
3890
2960
1920
Inventory
3720
2680
1724
Other assets
1160
0
0
Total Current Assets
8870
5640
5244
Non Current Assets
Property Plant & Equipment
5780
5200
3812
Total Assets
14650
10840
9056
Current Liabilities
Overdraft
0
400
0
Payables
1910
3100
3580
Other Creditors
278
224
100
Provisions
510
1720
1520
Total Current Liabilities
2698
5444
5200
Non Current Liabilities
Loans
3000
1600
1600
Total liabilities
5698
7044
6800
Net Assets
8952
3796
2256
Shareholders Equity
Issued capital
200
200
200
Retained profits
3596
2056
400
Profit/loss for year
5156
1540
1656
Shareholders equity
8952
3796
2256
Required:
a) Calculate the following ratios for 2016 2015 and 2014: Gross profit ratio Return on total assets Net profit ratio (before tax) Inventory turnover Receivables turnover Current ratio Quick ratio Times interest earned (before tax)
Note: assume inventory and receivables balances for 2013 are the same as for 2014 (12 marks)
(b) Identify and explain any going concern issues you have identified. (2 marks)(c) Identify the four accounts that you consider most at risk of misstatement. Use the background information financial statements and analytical results to justify your choices. (12 marks)(d) For the accounts identified in (c) explain if the accounts are likely to be overstated or understated and identify the key assertions that would be the focal point for the audit. Justify your choice of assertion. (9 marks)
You can using the following format to present the ratios for part (a)
Ratio
Ratio Formula
2016
2015
2014
The following table format can be used to answer parts (c) and (d).
Account at risk of misstatement and justification
Overstated or understated
Assertion(s) at risk
Justification
Question 4 (20 marks)
You have been involved with the audit of River Pty Ltd. – a manufacturer of household cleaning chemicals. As part of your interim review you have completed a walk through of the procedures involved with the purchases and payments cycle. The following is a summary of the procedures you have documented on your file:
Required:
a)Identify four strengths and two weaknesses in the purchases and payments system and justify your selections. (12 marks)
b)For each strength identified in part a) indicate one test to be performed to test the controls (4 marks)
c)For each weakness identified in part a) identify a test which can be performed to minimise this risk (4 marks)
Rationale
Covering material from topics 1 to 5 this assessment has been designed to develop your abilities to:
Marking criteria
Criteria
High Distinction
Distinction
Credit
Pass
Q1. Appraisal of the expanded role of auditors into providing assurance for sustainability statements (LO1 LO5) (15 marks)
The components of the sustainability statements for the selected Australian company separately identified and succinctly summarised with a very clear articulation of concepts and link to relative guidelines used by the company in preparing the report. The type of audit opinion provided is correctly identified. Four additional areas where auditors provide assurance correctly identified. Description of roles and identification of issues indicates insightful understanding of the expanding nature of assurance services.
The components of sustainability statements for the selected Australian company separately identified and succinctly summarised with a clear articulation of concepts and link to relative guidelines used for preparing the report. The type of audit opinion provided is correctly identified. Four additional areas where auditors provide assurance correctly identified. Description of roles and identification of issues indicates clear understanding of the expanding nature of assurance services.
The components of sustainability statements for selected the Australian company separately identified and summarised with a clear articulation of concepts and link to the relative guidelines used for preparing the report. The type of audit opinion provided is correctly identified. Four additional areas where auditors provide assurance correctly identified. Description of roles and identification of issues indicates an appropriate understanding of the expanding nature of assurance services.
The components of sustainability statements for selected the Australian company separately identified and used appropriately. The guidelines used for preparation of the report and/or type of audit opinion while identified may not be correct. Four additional areas where auditors provide assurance identified but some are more relevant than others. Description of roles and identification of issues indicates a tentative understanding of the expanding nature of assurance services.
Q2. Identification and evaluation of the ethical influences onthe audit process (LO2) (15 marks)
Provides a comprehensive synthesis and critical evaluation of the ethical issues in the scenario using the AAA model.
Provides an advanced synthesis and critical evaluation of the ethical issues in the scenario using the AAA model.
Provides a competent synthesis and critical evaluation of the ethical issues in the scenario using the AAA model.
Provides a basic evaluation of the ethical issues in the scenario. Some aspects of the AAA model overlooked or not well utilised.
Q3. Appraisal of the client’s business environment and application to the audit risk model (LO3) (35 marks)
All analytical calculations completed without flaws. Well supported and coherent explanation regarding going concern and for the identification of four (4) accounts at risk of misstatement. Response demonstrates an insightful understanding of the relationship between analytical procedures areas of risk and key assertions.
All analytical calculations completed with onlyminor errors. Well constructed explanation regarding going concern and for the choice of four (4) accounts at risk of misstatement. Response demonstrates a clear understanding of the relationship between analytical procedures areas of risk and key assertions.
All analytical calculations completed with only minorerrors. Competent explanation regarding going concern and for the choice of four (4) accounts at risk of misstatement. Response demonstrates an understanding of the relationship between analytical procedures areas of risk and key assertions.
One or two analytical calculations overlooked all other calculations are correct or contain only minor errors. Basic explanation regarding going concern and for the choice of four (4) accounts at risk of misstatement. Response demonstrates a limited understanding of the relationship between analytical procedures areas of risk and key assertions.
Q4. Appraisal of the client’s internal control environment and application to the audit risk model (LO3). Explanation for the selection of tests of control in the audit process. (LO4)(20 marks)
Well supported and coherent explanation for the choice of four (4) strong internal controls and tests of control. Well supported and coherent explanation for the choice of two (2) control weaknesses that most significantly threaten the client’s business risk in relation to purchases and payments of inventory. Likely impact on risk and tests minimising risk thoroughly articulated.
Well constructed explanation for the choice of four (4) strong internal controls and tests of control. Well constructed explanation for the choice of two (2) control weaknesses that most significantly threaten the client’s business risk environment in relation to purchases and payments of inventory. Likely impact on risk and tests minimising risk well articulated.
Competent explanation for the choice of four (4) strong internal controls and tests of control. Competent explanation for the choice of two (2) control weaknesses that may threaten the client’s business risk environment in relation to purchases and payments of inventory. Likely impact on risk and tests minimising risk clearly articulated.
Basic explanation for the choice of four (4) strong internal controls and tests of control. Basic explanation for the choice of two (2) control weaknesses that may threaten the client’s business risk environment in relation topurchases and payments of inventory. Articulation of likely impact on risk and tests minimising risk lacking some clarity.
Professional communication in accordance with APA 6th edition style. (15 marks)
Excellent written expression with very clear articulation of ideas and concepts. Superior grammar and spelling skills. References presented show evidence of significant research and are used accurately in accordance with APA (6th ed.) requirements.
Consistently clear and concise expression of ideas. No spelling errors and only minor grammatical errors. References presented show evidence of significant research and are used accurately in accordance with APA (6th ed.) requirements.
Expression of concepts is clear and concise. Very few spelling and/or grammatical errors. References presented show evidence of reading outside the subject resources and are used accurately in accordance with APA (6th ed.) requirements.
Some inconsistency in sentence structure. Clarity of expression could be enhanced by some revision. Some spelling errors and/or poor grammar. At least two references included and mostly used in accordance with APA (6th ed.) requirements.
Your assignment will be marked out of 100 which will then be converted to a mark out of 30.

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