UNIVERSITY OF SOUTHAMPTON MANG3015W1
SEMESTER 2 EXAMINATIONS 2018-19
AUDITING
DURATION: 120 MINUTES (2 HOURS)
This paper contains FIVE questions.
Answer THREE questions in total.
If you attempt more questions than required, only the required
number of answers will be marked. Please strike through any
answers that you do not wish to be marked. If you do not do this
the marker will mark the answers in the order that they appear in
your exam booklet(s).
An outline marking scheme is shown in brackets to the right of each
question.
Only University approved calculators may be used.
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Answer THREE questions.
1. This question relates to the ICAEW False Assurance and
Without Question films (which you have been using
during this module).
“The accounting for and auditing of provisions is a difficult topic
for professional accountants to get right”.
Required:
(a) Using examples from the ICAEW False Assurance and
Without Question films explain the extent to which you agree
with that statement.
[30 marks]
(b) Using the examples from the ICAEW films, critically
appraise the performance of each of the Senior Audit
Partners in each film (Patrick Lyon in False Assurance and
Will Jackson in Without Question).
[50 marks]
(c) Identify and explain TWO threats to independence that
auditors failed to address in the audit of D-Merton and/or
Rapston Hotels.
[20 marks]
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2. This question relates to the UWE Audit Simulation (which you
have been using during this module).
Required:
(a) Using examples from the AuditSim, identify and explain
which audit assertions are relevant for the testing of Trade
Receivables.
For each assertion identified evaluate whether you think
there is a High, Medium or Low risk of material
misstatement associated with it for the purposes of the
audit of Sheridan AV Ltd.
[50 marks]
(b) Identify and briefly explain FIVE Tests of Control and FIVE
Substantive Audit Procedures that could be used to audit
Sheridan AV’s Trade Receivable balance.
[50 marks]
TURN OVER
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3. The Independent Review of the Financial Reporting Council
performed by John Kingman and the Competition and Markets
Authority’s Statutory Audit Services Market Study have
identified several failings within the UK’s audit market.
One of the proposed remedies is to increase the regulatory
scrutiny of audit committees.
However, other studies (including Reforming the Auditing
Industry, commissioned by Shadow Chancellor of the
Exchequer, John McDonnell MP) have advocated the
appointment of auditors of Public Interest Entities by an
independent body.
(a) Evaluate the possible impact of such changes on the
auditing profession and Public Interest Entities in the UK.
[30 marks]
(b) Explain and evaluate other initiatives that have been
identified to improve the competitiveness of the audit market.
[50 marks]
(b) Evaluate the role of Recognised Supervisory Bodies within
the regulation of the UK audit industry.
[20 marks]
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4. Brown Ltd buys coal which is washed and sorted into different
grades prior to selling to commercial and domestic customers.
A minority of the coal is purchased locally in the UK, with the
majority being imported from Russia.
Imports are landed at port 50 miles away, stored there in the
open and transported, by a third party train operator, to the
company’s premises when there is sufficient storage capacity
on site.
All inventory movements into Brown Ltd are by train and are
checked on a weighbridge owned by the train operator. Brown
Ltd dispatches all of its sales of coal by road. It weighs its
trucks when dispatching wholesale orders, but not retail orders
(which are much smaller).
The company also washes and sorts coal for other merchants.
Each merchant is charged a fee by Brown Ltd per tonne of coal
washed and sorted.
Inventory quantities are ascertained for the annual financial
statements by a physical count. This is conducted by
management, who calculates the volume of inventory and
subsequently converts the results for each grade into tonnage.
When a purchase invoice is received it is automatically
processed for payment by Brown Ltd’s accounting software.
Sales to regular wholesale customers are also processed
automatically by Brown Ltd’s accounting software, but retail
sales are recorded manually.
The managing director has informed you that the physical
inventory count will be held at the yearend which will be on a
Saturday. Business will continue as usual until lunchtime,
although the count will be taking place all day.
TURN OVER
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You are the incoming auditor of Brown Ltd and have no prior
knowledge of the firm, or industry. You are carefully
considering the arrangements for the count.
Required:
(a) Using the information above assess the audit risks
associated with Brown Ltd’s inventories.
For each risk identified set out the steps that you would
take on the audit to address them.
[50 marks]
(b) Explain why it is important for you to attend the
physical inventory count for Brown Ltd.
[30 marks]
(c) Evaluate whether analytical review is likely to provide
assurance over Inventory in the audit for Brown Ltd.
[20 marks]
5. You are required to write an essay on an area of current interest
within auditing. The topic chosen must not be one that has been
covered within the course and could therefore be examined in
any depth elsewhere on the paper. It must also not be a topic
you have explored within your dissertation. You were advised to
obtain approval for the topic prior to the examination. You may
still answer the question if you did not obtain approval, but may
find your chosen topic is not acceptable. If this is the case you
may not be awarded any marks for your answer.
Please commence your answer with your chosen title.
This question will be marked flexibly, but as a guideline marks
are likely to be allocated as follows:
Introduction and explanation of the issue.
[20 marks]
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An assessment of any theories, arguments and research
relevant to the topic. This section should include your own
opinions.
[65 marks]
Conclusion
[15 marks]
END OF PAPER
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