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问答题

问答题1.YouareamanagerintheauditdepartmentofCraggy&Co,afirmofCharteredCertifiedAccountants,andyouhavejustbeenassignedtotheauditofTedCo,anewauditclientofyourfirm,withafinancialyearended31May2015.TedCo,anewlylistedcompany,isacomputergamesdesigneranddeveloper,andhasgrownrapidlyinthelastfewyears.Theauditengagementpartner,JackHackett,hassentyouthefollowingemail:NotesfrommeetingwithLenBrennanTedCowasformedtenyearsagobyDougalDoyle,agraduateinmultimediacomputing.Thecompanydesigns,developsandpublishescomputergamesincludingmanyhighlysuccessfulgameswhichhavewonindustryawards.Inthelasttwoyearsthecompanyinvested$100mincreatinggamesdesignedtoappealtoabroad,globalaudienceandsalesarenowmadeinover60countries.Thesoftwareusedinthecomputergamesisdevelopedinthiscountry,butthemanufactureofthephysicalproducttakesplaceoverseas.Computergamesarelargelysoldthroughretailoutlets,butapproximately25%ofTedCo’srevenueisgeneratedthroughsalesmadeonthecompany’swebsite.InsomecountriesTedCo’sproductsaredistributedunderlicenceswhichgivethelicenceholdertheexclusiverighttoselltheproductsinthatcountry.Thecostofeachlicencetothedistributordependsontheestimatedsalesinthecountrytowhichitrelates,andlicenceslastforanaverageoffiveyears.TheincomewhichTedCoreceivesfromthesaleofalicenceisdeferredovertheperiodofthelicence.At31May2015thetotalamountofdeferredincomerecognisedinTedCo’sstatementoffinancialpositionis$18million.Aspartofafive-yearstrategicplan,TedCoobtainedastockmarketlistinginDecember2014.Thelistingandrelatedshareissueraisedasignificantamountoffinance,andmanysharesareheldbyinstitutionalinvestors.DougalDoyleretainsa20%equityshareholding,andafurther10%ofthecompany’ssharesareheldbyhisfamilymembers.Despitebeinglisted,thecompanydoesnothaveaninternalauditdepartment,andthereisonlyonenon-executivedirectorontheboard.Theseproblems,whichTedCo’smanagementishopingtoresolveinthenextfewmonths,areexplainedinthecompany’sannualreport,asrequiredbytheapplicablecorporategovernancecode.Recently,asmalltreasurymanagementfunctionwasestablishedtomanagethecompany’sforeigncurrencytransactions,whichincludeforwardexchangecurrencycontracts.Thetreasurymanagementfunctionalsodealswithshort-terminvestments.InJanuary2015,cashof$8millionwasinvestedinaportfolioofequitysharesheldinlistedcompanies,whichistobeheldintheshorttermasaspeculativeinvestment.Thesharesarerecognisedasafinancialassetatcostof$8millioninthedraftstatementoffinancialposition.Thefairvalueofthesharesat31May2015is$6million.Asalistedcompany,TedCoisrequiredtodiscloseitsearningspersharefigure.DougalDoylewouldlikethistobebasedonanadjustedearningsfigurewhichdoesnotincludedepreciationoramortisationexpenses.ThepreviousauditorsofTedCo,asmallfirmcalledCrilly&Co,resignedinSeptember2014.Theauditopiniononthefinancialstatementsfortheyearended31May2014wasunmodified.ExtractofdraftfinancialstatementsandresultsofpreliminaryanalyticalreviewStatementofprofitorloss(extract)Required:Respondtotheemailfromtheauditpartner.(31marks)Note:Thesplitofthemarkallocationisshowninthepartner’semail.Professionalmarkswillbeawardedforthepresentation,clarityofexplanationsandlogicalflowofthebriefingnotes.(4marks)

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问答题

问答题