案例分析题It is 1 July 20X5
案例分析题Section A BOTH questions are compulsory and MUST be attempted
1、You are a manager in the audit department of Dove Co, responsible for the audit of the Sunshine Hotel Group (the Group), which has a financial year ending 31 December 2017. The Group operates a chain of luxury hotels and it is planning to expand its operations over the next three years by opening hotels in countries with increasingly popular tourist destinations.
You are about to start planning the Group audit for forthcoming year end, and the audit engagement partner has just sent the following email to you:
Background information
The Group owns 20 hotels, all located in popular beachside holiday resorts. The hotels operate on an all-inclusive basis, whereby guests can consume unlimited food and drink, and take part in a variety of water sports including scuba diving as part of the price of their holiday. Each hotel has at least four restaurants and a number of bars. The Sunshine Hotel brand is a market leader, with significant amounts spent each year on marketing to support the brand. The hotels are luxurious and maintained to a very high standard and are marketed as exclusive adult-only luxury holiday destinations.
When customers book to stay in the hotel, they are charged a deposit equivalent to 20% of the total cost of their stay, and a further 20% is payable eight weeks before arrival. The remaining 60% is settled on departure. If a booking is cancelled prior to a week before a guests stay commences, then a full refund is given, but no refunds are given for cancellations within the week leading up to a guests stay.
Notes from meeting with finance director and representative of Group audit committee
The Group has seen continued growth, with revenue for the year to 31 December 2017 projected to be $125 million (2016 $110 million), and profit before tax projected to be $10 million (2016 $9 million).
According to the latest management accounts, the Groups total assets are currently $350 million. The Sunshine Hotel brand is not recognised as an asset in the financial statements because it has been internally generated. The Group has cash of $20 million at todays date. Most of this cash is held on short-term deposit in a number of different currencies. Based on the latest management accounts, the Groups gearing ratio is 25%.
In January 2017, the Group entered into an agreement with an internationally acclaimed restaurant chain, Moulin Blanche, to open new restaurants in its five most popular hotels. The agreement cost $5 million, lasts for 10 years, and allows the Group to use the restaurant name, adopt the menus and decorate the restaurants in the style of Moulin Blanche. The cost of $5 million has been recognised within marketing expenses for the year. After a period of refurbishment, the new restaurants opened in all five hotels on 1 July 2017.
Part of the Group strategy is to expand into new countries, and in July 2017 the Group purchased land in three new locations in Farland at a cost of $75 million. There are currently no specific plans for the development of these locations due to political instability in the country. In addition to the Farland acquisitions, an existing hotel complex was purchased from a competitor for $23 million. The hotel complex is located in a country where local legislation prohibits private ownership and use of beaches, so the Groups hotel guests cannot enjoy the private and exclusive use of a beach which is one of the Groups key selling points. For this reason, the Group has not yet developed the hotel complex and it is currently being used as a location for staff training. All of these assets are recognised at cost as property, plant and equipment in the Group statement of financial position. Due to the problems with these recent acquisitions, the Group is planning to invest in alternative locations, with capital expenditure on sites in new locations of $45 million budgeted for 2018. This will be funded entirely from an undrawn borrowing facility with the Groups bank which has a fixed interest rate of 35% per annum.
Two of the Groups hotels are located in an area prone to hurricanes, and unfortunately only last week, a hurricane caused severe damage to both of these hotels. Under the Groups hurricane guarantee scheme, customers who were staying at the hotels at the time of the hurricane were transferred to other Group hotels, at no cost to the customer. Customers with bookings to stay at the closed hotels have been offered a refund of their deposits, or to transfer their reservation to a different Group hotel, under the terms of the scheme. The hotels are closed while the necessary repair work, which will take two months, is carried out at an estimated cost of $25 million. The repair work will be covered by the Groups insurance policy, which typically pays half of the estimated cost of repair work in advance, with the balance paid when the repair work is completed. No accounting entries have been made as yet in relation to the hurricane.
Extract from email from the Group finance director to John Starling, audit engagement partner
Required:
Respond to the instructions in the partners email. (31 marks)
Professional marks to be awarded for presentation, logical flow, and clarity of explanations provided. (4 marks)
案例分析题(a) You are an audit manager in Coram Co
案例分析题(a) You are the manager responsible for the audit of Kilmister Co, a listed company specialising in the manufacture and installation of sound-proof partitions for domestic and industrial buildings
案例分析题5、(a) Discuss the three types of misstatement identified in ISA 450 Evaluation of Misstatements Identified During the Audit and comment on why it is important for the auditor to consider the type of misstatement when evaluating their effect on the financial statements and determining the further actions to be taken
案例分析题It is 1 July 20X5
案例分析题Section A BOTH questions are compulsory and MUST be attempted
1、The Bassett Group (the Group) is a publisher of newspapers and magazines, academic journals, and books. The Group, a listed entity, has a financial year ending 30 April 2018, and your firm, Whippet Co, was appointed as Group auditor in September 2017. Whippet Co will audit all Group companies with the exception of Borzoi Co, a foreign subsidiary, which is audited by a local firm of auditors, Saluki Associates. The Group aims to comply fully with relevant corporate governance requirements.
You are the manager responsible for the Group audit, and the audit engagement partner has just sent the following email to you:
Background information and results of analytical procedures
The Group operates globally, with sales being made in over 100 countries. The Group has 20 subsidiaries which have been acquired over the last 30 years. All Group companies are located in the same country, with the exception of Borzoi Co, a foreign subsidiary whose operations focus on the translation of published content into a variety of different languages.
The Groups publishing activities can be categorised into three operating segments, each of which are cash generating units for the purpose of impairment reviews: newspapers and magazines, academic journals, and books. The revenue and total assets for 2018 (projected) and 2017 (actual) for the Group in total and for each segment is as follows:
During the financial year the Group has invested in software which enhances and extends the Groups range of digital publications, across all operating segments. The total investment, which is recognised as an intangible asset, was $15 million, of which $5 million relates to purchased software, and $10 million relates to internally developed software. According to management, the implementation of this software has already led to significant increases in sales of digital publications, and while this accounts for only approximately 20% of Group revenue currently, management is confident that sales of digital publications will quickly grow, and within three years is expected to overtake sales of hard copy publications across all operating segments. Using this justification, management does not consider it necessary to perform impairment reviews on any of the three operating segments this year.
Information on some specific aspects of the Groups operations and the associated Group accounting policies, and information in relation to Borzoi Co, is given below:
Newspapers and magazines publication rights
A substantial portion of the Groups newspaper and magazine publications are protected by publication rights which protect the Groups exclusive right to publish the relevant newspaper or magazine for specified periods. The Group owns more than 200 publication rights, which range in period of exclusivity from five years to 30 years. The publication rights are recognised as an intangible asset with a carrying amount of $79 million. The Groups accounting policy is to amortise publication rights over an average period of 25 years.
Books royalty advances
The Group commissions authors to write books for which the Group owns the copyright. When a book is commissioned, the author is paid a royalty advance, the amount of which depends on the expected sales of the book. The Groups accounting policy is to defer the cost of the royalty advance within current assets until the book is published, at which point the cost begins to be recognised as an expense, spread over a ten-year period. The Group finance director does not have a justification for this ten-year period other than it being industry practice. The total royalty advance projected to be recognised within current assets at 30 April 2018 is $34 million.
Borzoi Co
Borzoi Co is located in Farland, a country which has recently experienced political unrest, leading to significant volatility in the local currency, the Oska. At todays date, the management accounts of Borzoi Co recognise total assets of 68 million Oska, and the exchange rate is 4 Oska:1$. In the last six months, the exchange rate has fluctuated between 10 Oska:1$ to 3 Oska:1$.
Farland requires the use of IFRS Standards and therefore Borzoi Co prepares its financial statements using IFRS Standards as its applicable financial reporting framework.
To help with the companys development of language translation operations, on 1 May 2017, Bassett Co, the parent company of the Group, transferred a piece of translation software to Borzoi Co. The software had been purchased by the parent company for $15 million several years ago and prior to transfer to Borzoi Co, it was held at a carrying amount of $1 million, this being its cost less amortisation to date. Immediately prior to being transferred to Borzoi Co, the software was revalued in the parent companys financial statements to $54 million, this being its estimated fair value at the time of the transfer. The estimate of fair value was determined by Group management, and this amount is still outstanding for payment by Borzoi Co.
Communication from Grey Co
The previous Group auditor, Grey Co, states the following in their communication to Whippet Co:
We have acted as Group auditor for the last four years and our audit opinion has been unmodified each year. However, we would like to bring to your attention a matter relating to the Groups corporate governance arrangements. We found that on several occasions in the last year the Group CFO initially blocked our firms access to the Group audit committee, making it difficult for us to discuss matters relating to the audit with the committee.
Required:
Respond to the instructions in the audit engagement partners email. (31 marks)
Note: The split of the mark allocation is shown within the email.
Note: The split of the mark allocation is shown within the email.
案例分析题(a) Following recent changes to its International Code of Ethics for Professional Accountants (the Code), in relation to audit firms providing non assurance services to audit clients, the IESBA commented that:
The performance of non assurance services may create threats to independence of the firm or members of the audit team. Such threats include self review, self interest and advocacy threats. Further if a firm were to assume a management responsibility for an audit client, the threats created would be so significant that no safeguards could reduce the threats to an acceptable level. However, there are varying views on what constitutes a management responsibility and as such it is in the public interest to enhance the clarity and guidance on this topic in the Code.
Required:
Discuss the changes made to the Code in relation to non-assurance services and evaluate the arguments for and against auditors providing non-assurance services to audit clients.
(b) It is 1 July 20X5. You are a manager in Hunt Co, a firm which offers a range of services to audit and non audit clients. You have been asked to consider a potential engagement to review and provide a report on the prospective financial information of Waters Co, a company which has been an audit client of Hunt Co for six years. The audit of the financial statements for the year ended 31 May 20X5 has just commenced.
Waters Co operates a chain of cinemas across the country. Currently its cinemas are out of date and use projectors which cannot show films made using new technology, which are becoming more popular. Management is planning to invest in all of its cinemas in order to attract more customers. The company has sufficient cash to fund half of the necessary capital expenditure, but has approached its bank with a loan application of $8 million for the remainder of the funds required. Most of the cash will be used to invest in equipment and fittings, such as new projectors and larger screens, enabling new technology films to be shown in all cinemas. The remaining cash will be used for refurbishment of the cinemas. Prior to finalising the application for the funding from the bank, the finance director has also asked if the audit engagement partner will assist him in presenting the final version of the strategic plan, in relation to the refurbishment, to the board as he knows that Hunt Co has several clients in the industry and the partner will be able to confirm that the plan is consistent with what others in the industry are doing.
The draft forecast statements of profit or loss for the years ending 31 May 20X6 and 20X7 are shown below, along with the key assumptions which have been used in their preparation. The unaudited statement of profit or loss for the year ended 31 May 20X5 is also shown below. The forecast has been prepared for use by the bank in making its lending decision, and will be accompanied by other prospective financial information including a forecast statement of cash flows.
Forecast statement of profit or loss
Note 1: The forecast increase in revenue is based on the following assumptions:
(i) All cinemas will be fitted with new projectors and larger screens to show new technology films by September 20X5.
(ii) Ticket prices will increase from $750 to $10 from 1 September 20X5.
Note 2: Operating expenses include mainly staff costs, depreciation of property and equipment, and repairs and maintenance to the cinemas.
Required:
(i) Explain the matters to be considered by Hunt Co before accepting the engagement to review and report on Waters Cos prospective financial information.
(ii) Assuming the engagement is accepted, describe the examination procedures to be used in respect of the forecast statement of profit or loss.
(iii) Discuss the content of the report which would be issued on the prospective financial information, explaining the level of assurance which is provided.
案例分析题You are a manager in the audit department of Bison Co, a firm of Chartered Certified Accountants, responsible for the audit of the Eagle Group (the Group), which has a financial year ending 31 December 20X8. Your firm is appointed to audit the parent company, Eagle Co, and all of its subsidiaries, with the exception of Lynx Co, a newly acquired subsidiary located in a foreign country which is audited by a local firm of auditors, Vulture Associates.
All companies in the Group report using IFRS Standards as the applicable financial reporting framework and have the same financial year end.
You are provided with the following exhibits:
1. An email which you have received from Maya Crag, the audit engagement partner.
2. Background information about the Group including a request from the Group finance director in respect of a non‑audit engagement.
3. Extracts from the Group financial statements projected to 31 December 20X8 and comparatives, extracted from the management accounts, and accompanying explanatory notes.
4. Managements determination of the goodwill arising on the acquisition of Lynx Co.
5. An extract from the audit strategy document prepared by Vulture Associates relating to Lynx Co.
Required:
Respond to the instructions in the email from the audit engagement partner.
Note: The split of the mark allocation is shown in the partners email (Exhibit 1).
Professional marks will be awarded for the presentation and logical flow of the briefing notes and the clarity of the explanations provided.
Exhibit 1 Email from audit engagement partner
To: Audit manager
From: Maya Crag, Audit engagement partner
Subject: Audit planning for the Eagle Group
Hello
I have provided you with some information in the form of a number of exhibits which you should use in planning the audit of the Eagle Group (the Group). I held a meeting yesterday with the Group finance director and representatives from the Group audit committee, and we discussed a number of issues which will impact on the audit planning.
Using the information provided, I require you to prepare briefing notes for my use in which you:
(a) Evaluate the audit risks to be considered in planning the Group audit. You should use analytical procedures to assist in identifying audit risks. You are not required to consider audit risks relating to disclosure, as these will be planned for later in the audit process.
(b) Design the principal audit procedures to be used in the audit of the goodwill arising on the acquisition of Lynx Co. Managements calculation of the goodwill is shown in Exhibit 4. You do not need to consider the procedures relating to impairment testing, or to foreign currency retranslation, as these will be planned later in the audit.
(c) Using the information provided in Exhibit 5, evaluate the extract of the audit strategy prepared by Vulture Associates in respect of their audit of Lynx Co and discuss any implications for the Group audit.
(d) After considering the request in Exhibit 2 from the Group finance director in respect of our firm providing advice on the Groups integrated report, discuss the ethical and professional implications of this request, recommending any further actions which should be taken by our firm.
Exhibit 2 Background information about the Group and request from Group finance director
Group operational activities
The Group, which is a listed entity, operates in distribution, supply chain and logistics management. Its operations are worldwide, spanning more than 200 countries. The Groups strategy is to strengthen its market share and grow revenue in a sustainable manner by expansion into emerging markets. There are over 50 subsidiaries in the Group, many of which are international. There are three main business divisions: post and parcel delivery, commercial freight and supply chain management, each of which historically has provided approximately one third of the Groups revenue.
A fourth business division which focuses purely on providing distribution channels for the oil and coal sector was established two years ago, and in 20X8 began to grow quite rapidly. It is forecast to provide 12% of the Groups revenue this year, growing to 15% in 20X9. This division is performing particularly well in developing economies.
In recent years, revenue has grown steadily, based mainly on growth in some locations where e commerce is rapidly developing. This year, revenue is projected to decline slightly, which the Group attributes to increased competition, as a new distribution company has taken some of the Groups market share in a number of countries. However, the Group management team is confident that this is a short term drop in revenue, and forecasts a return to growth in 20X9.
Innovation
The Group has invested in automating its warehousing facilities, and while it still employs more than 250,000 staff, many manual warehouse jobs are now performed by robots. Approximately 5,000 staff were made redundant early in this financial year due to automation of their work. Other innovations include increased use of automated loading and unloading of vehicles, and improvements in the technology used to monitor and manage inventory levels.
Integrated reporting
The Group is proud of this innovation and is keen to highlight these technological developments in its integrated report. The Group finance director has been asked to lead a project tasked with producing the Groups first integrated report. The finance director has sent the following request to the audit engagement partner:
We would like your firm to assist us in developing our integrated report, and to provide assurance on it, as we believe this will enhance the credibility of the information it contains. Specifically, we would like your input into the choice of key performance indicators which should be presented, how to present them, and how they should be reconciled, where relevant, to financial information from the audited financial statements.
The publication of an integrated report is not a requirement in the jurisdiction in which the Group is headquartered, but there is a growing pressure from stakeholders for an integrated report to be produced by listed reporting entities.
If Bison Co accepts the engagement in relation to the Groups integrated report, the work would be performed by a team separate from the audit team.
Exhibit 3 Extracts from consolidated financial statements
Statement of financial position
Statement of profit or loss
Notes to the extracts from financial statements
Goodwill
1. Goodwill relates to the Groups subsidiaries, and is tested for impairment on an annual basis. Management will conduct the annual impairment review in December 20X8, but it is anticipated that no impairment will need to be recognised this year due to anticipated growth in revenue which is forecast for the next two years.
In March 20X8, the Group acquired an 80% controlling shareholding in Lynx Co, a listed company located in a foreign country, for consideration of $351 million. Managements determination of the goodwill arising on this acquisition is shown in Exhibit 4.
Other intangible assets
2. Other intangible assets relates mostly to software and other technological development costs. During the year $35 million was spent on developing a new IT system for dealing with customer enquiries and processing customer orders. A further $20 million was spent on research and development into robots being used in warehouses, and $5 million on developing new accounting software. These costs have been capitalised as intangible assets and are all being amortised over a 15 year useful life.
Equity and non-current liabilities
3. A share issue in July 20X8 raised cash of $100 million, which was used to fund capital expenditure.
4. Non current liabilities includes borrowings of $550 million (20X7 $500 million) and provisions of $100 million (20X7 $120 million). Changes in financing during the year have impacted on the Groups weighted average cost of capital. Information from the Groups treasury management team suggests that the weighted average cost of capital is currently 10%.
Financial performance
5. Revenue has decreased by 37% over the year, due to a new competitor in the market taking some of the Groups market share.
6. Other operating income comprises the following items:
7. Operating expenses includes the following items:
Exhibit 4 Determination of goodwill on the acquisition of Lynx Co
Notes:
1. The contingent consideration will be payable four years after the acquisition date and is calculated based on a payment of $525 million, only payable if Lynx Co reaches revenue and profit targets outlined in the purchase documentation. The amount included in the goodwill calculation has been discounted to present value using a discount factor based on an 18% interest rate.
2. The non controlling interest is measured at fair value, the amount being based on Lynx Cos share price on 1 March 20X8.
3. The assets and liabilities acquired and their fair values were determined by an independent firm of Chartered Certified Accountants, Sidewinder Co, who was engaged by the Group to perform due diligence on Lynx Co prior to the acquisition taking place. A fair value uplift of $12 million was made in relation to property, plant and equipment.
Exhibit 5 Extract from audit strategy prepared by Vulture Associates in respect of the audit of Lynx Co
The two points below are an extract from the audit strategy. Other sections of the audit strategy, including the audit risk assessment, have been reviewed by the Group audit team and are considered to be satisfactory. Lynx Co is projected to be loss making this year, and the Group audit team is confident that sufficient procedures on going concern have been planned for.
Controls effectiveness
We will place reliance on internal controls, which will reduce the amount of substantive testing which needs to be performed. This is justified on the grounds that in the previous years audit, controls were tested and found to be highly effective. We do not plan to re test the controls, as according to management there have been no changes in systems or the control environment during the year.
Internal audit
Lynx Co has offered the services of its internal audit team to help perform audit procedures. We are planning to use the internal auditors to complete the audit work in respect of trade receivables, as they have performed work on this area during the year. It will be efficient for them to perform and conclude on the relevant audit procedures, including the trade receivables circularisation, and evaluation of the allowance for trade receivables, which we will instruct them to carry out.
案例分析题You are an audit manager in Thomasson Co, a firm of Chartered Certified Accountants
案例分析题2、You are the manager responsible for the audit of Thurman Co, a manufacturing company which supplies stainless steel components to a wide range of industries
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