问题:2 Your firm was appointed as auditor to Indigo Co, an iron and steel corporation, in September 2005. You are themanager in charge of the audit of the financial statements of Indigo, for the year ending 31 December 2005.Indigo owns office buildings, a workshop and a substantial stockyard on land that was leased in 1995 for 25 years.Day-to-day operations are managed by the chief accountant, purchasing manager and workshop supervisor whoreport to the managing director.All iron, steel and other metals are purchased for cash at ‘scrap’ prices determined by the purchasing manager. Scrapmetal is mostly high volume. A weighbridge at the entrance to the stockyard weighs trucks and vans before and afterthe scrap metals that they carry are unloaded into the stockyard.Two furnaces in the workshop melt down the salvageable scrap metal into blocks the size of small bricks that are thenstored in the workshop. These are sold on both credit and cash terms. The furnaces are now 10 years old and havean estimated useful life of a further 15 years. However, the furnace linings are replaced every four years. An annualprovision is made for 25% of the estimated cost of the next relining. A by-product of the operation of the furnaces isthe production of ‘clinker’. Most of this is sold, for cash, for road surfacing but some is illegally dumped.Indigo’s operations are subsidised by the local authority as their existence encourages recycling and means that thereis less dumping of metal items. Indigo receives a subsidy calculated at 15% of the market value of metals purchased,as declared in a quarterly return. The return for the quarter to 31 December 2005 is due to be submitted on21 January 2006.Indigo maintains manual inventory records by metal and estimated quality. Indigo counted inventory at 30 November2005 with the intention of ‘rolling-forward’ the purchasing manager’s valuation as at that date to the year-endquantities per the manual records. However, you were not aware of this until you visited Indigo yesterday to planyour year-end procedures.During yesterday’s tour of Indigo’s premises you saw that:(i) sheets of aluminium were strewn across fields adjacent to the stockyard after a storm blew them away;(ii) much of the vast quantity of iron piled up in the stockyard is rusty;(iii) piles of copper and brass, that can be distinguished with a simple acid test, have been mixed up.The count sheets show that metal quantities have increased, on average, by a third since last year; the quantity ofaluminium, however, is shown to be three times more. There is no suitably qualified metallurgical expert to valueinventory in the region in which Indigo operates.The chief accountant disappeared on 1 December, taking the cash book and cash from three days’ sales with him.The cash book was last posted to the general ledger as at 31 October 2005. The managing director has made anallegation of fraud against the chief accountant to the police.The auditor’s report on the financial statements for the year ended 31 December 2004 was unmodified.Required:(a) Describe the principal audit procedures to be carried out on the opening balances of the financial statementsof Indigo Co for the year ending 31 December 2005. (6 marks)
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问题:3 Airtite was set up in 2000 as a low cost airline operating from a number of regional airports in Europe. Using theseless popular airports was a much cheaper alternative to the major city airports and supported Airtite’s low cost service,modelled on existing low cost competitors. These providers had effectively transformed air travel in Europe and, in sodoing, contributed to an unparalleled expansion in airline travel by both business and leisure passengers. Airtite usedone type of aircraft, tightly controlled staffing levels and costs, relied entirely on online bookings and achieved highlevels of capacity utilisation and punctuality. Its route network had grown each year and included new routes to someof the 15 countries that had joined the EU in 2004. Airtite’s founder and Chief Executive, John Sykes, was anaggressive businessman ever willing to challenge governments and competitors wherever they impeded his airline andlooking to generate positive publicity whenever possible.John is now looking to develop a strategy which will secure Airtite’s growth and development over the next 10 years.He can see a number of environmental trends emerging which could significantly affect the success or otherwise ofany developed strategy. 2006 had seen fuel costs continue to rise reflecting the continuing uncertainty over globalfuel supplies. Fuel costs currently account for 25% of Airtite’s operating costs. Conversely, the improving efficiency ofaircraft engines and the next generation of larger aircraft are increasing the operating efficiency of newer aircraft andreducing harmful emissions. Concern with fuel also extends to pollution effects on global warming and climatechange. Co-ordinated global action on aircraft emissions cannot be ruled out, either in the form. of higher taxes onpollution or limits on the growth in air travel. On the positive side European governments are anxious to continue tosupport increased competition in air travel and to encourage low cost operators competing against the over-staffedand loss-making national flag carriers.The signals for future passenger demand are also confused. Much of the increased demand for low cost air travel todate has come from increased leisure travel by families and retired people. However families are predicted to becomesmaller and the population increasingly aged. In addition there are concerns over the ability of countries to supportthe increasing number of one-parent families with limited incomes and an ageing population dependent on statepensions. There is a distinct possibility of the retirement age being increased and governments demanding a higherlevel of personal contribution towards an individual’s retirement pension. Such a change will have a significant impacton an individual’s disposable income and with people working longer reduce the numbers able to enjoy leisure travel.Finally, air travel will continue to reflect global economic activity and associated economic booms and slumps togetherwith global political instability in the shape of wars, terrorism and natural disasters.John is uncertain as to how to take account of these conflicting trends in the development of Airtite’s 10-year strategyand has asked for your advice.Required:(a) Using models where appropriate, provide John with an environmental analysis of the conditions affecting thelow cost air travel industry. (12 marks)
问题:TQ Company, a listed company, recently went into administration (it had become insolvent and was being managed by a firm of insolvency practitioners). A group of shareholders expressed the belief that it was the chairman, Miss Heike Hoiku, who was primarily to blame. Although the company’s management had made a number of strategic errors that brought about the company failure, the shareholders blamed the chairman for failing to hold senior management to account. In particular, they were angry that Miss Hoiku had not challenged chief executive Rupert Smith who was regarded by some as arrogant and domineering. Some said that Miss Hoiku was scared of Mr Smith.Some shareholders wrote a letter to Miss Hoiku last year demanding that she hold Mr Smith to account for a number of previous strategic errors. They also asked her to explain why she had not warned of the strategic problems in her chairman’s statement in the annual report earlier in the year. In particular, they asked if she could remove Mr Smith from office for incompetence. Miss Hoiku replied saying that whilst she understood their concerns, it was difficult to remove a serving chief executive from office.Some of the shareholders believed that Mr Smith may have performed better in his role had his reward package been better designed in the first place. There was previously a remuneration committee at TQ but when two of its four non-executive members left the company, they were not replaced and so the committee effectively collapsed.Mr Smith was then able to propose his own remuneration package and Miss Hoiku did not feel able to refuse him.He massively increased the proportion of the package that was basic salary and also awarded himself a new and much more expensive company car. Some shareholders regarded the car as ‘excessively’ expensive. In addition, suspecting that the company’s performance might deteriorate this year, he exercised all of his share options last year and immediately sold all of his shares in TQ Company.It was noted that Mr Smith spent long periods of time travelling away on company business whilst less experienced directors struggled with implementing strategy at the company headquarters. This meant that operational procedures were often uncoordinated and this was one of the causes of the eventual strategic failure.(a) Miss Hoiku stated that it was difficult to remove a serving chief executive from office.Required:(i) Explain the ways in which a company director can leave the service of a board. (4 marks)(ii) Discuss Miss Hoiku’s statement that it is difficult to remove a serving chief executive from a board.(4 marks)(b) Assess, in the context of the case, the importance of the chairman’s statement to shareholders in TQCompany’s annual report. (5 marks)(c) Criticise the structure of the reward package that Mr Smith awarded himself. (4 marks)(d) Criticise Miss Hoiku’s performance as chairman of TQ Company. (8 marks)
问题:Faithful representation is a fundamental characteristic of useful information within the IASB’s Conceptual framework for financial reporting.Which of the following accounting treatments correctly applies the principle of faithful representation?A.Reporting a transaction based on its legal status rather than its economic substanceB.Excluding a subsidiary from consolidation because its activities are not compatible with those of the rest of the groupC.Recording the whole of the net proceeds from the issue of a loan note which is potentially convertible to equity shares as debt (liability)D.Allocating part of the sales proceeds of a motor vehicle to interest received even though it was sold with 0% (interest free) finance
问题:(iv) critiques the performance measurement system at TSC. (5 marks
问题:Is the following statement true or false?A significant change in the ownership of an existing audit client is a factor which makes it appropriate for the auditor to review the terms of engagement.A.TrueB.False
问题:(c) Critically discuss the likely effectiveness of standard questionnaires sent to other auditors as a means ofobtaining information required. (5 marks)
问题:There has been significant divergence in practice over recognition of revenue mainly because International Financial Reporting Standards (IFRS) have contained limited guidance in certain areas. The International Accounting Standards Board (IASB) as a result of the joint project with the US Financial Accounting Standards Board (FASB) has issued IFRS 15 Revenue from Contracts with Customers. IFRS 15 sets out a five-step model, which applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. Step one in the five-step model requires the identification of the contract with the customer and is critical for the purpose of applying the standard. The remaining four steps in the standard’s revenue recognition model are irrelevant if the contract does not fall within the scope of IFRS 15.Required:(a) (i) Discuss the criteria which must be met for a contract with a customer to fall within the scope of IFRS 15. (5 marks)(ii) Discuss the four remaining steps which lead to revenue recognition after a contract has been identified as falling within the scope of IFRS 15. (8 marks)(b) (i) Tang enters into a contract with a customer to sell an existing printing machine such that control of the printing machine vests with the customer in two years’ time. The contract has two payment options. The customer can pay $240,000 when the contract is signed or $300,000 in two years’ time when the customer gains control of the printing machine. The interest rate implicit in the contract is 11·8% in order to adjust for the risk involved in the delay in payment. However, Tang’s incremental borrowing rate is 5%. The customer paid $240,000 on 1 December 2014 when the contract was signed. (4 marks)(ii) Tang enters into a contract on 1 December 2014 to construct a printing machine on a customer’s premises for a promised consideration of $1,500,000 with a bonus of $100,000 if the machine is completed within 24 months. At the inception of the contract, Tang correctly accounts for the promised bundle of goods and services as a single performance obligation in accordance with IFRS 15. At the inception of the contract, Tang expects the costs to be $800,000 and concludes that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will occur. Completion of the printing machine is highly susceptible to factors outside of Tang’s influence, mainly issues with the supply of components.At 30 November 2015, Tang has satisfied 65% of its performance obligation on the basis of costs incurred to date and concludes that the variable consideration is still constrained in accordance with IFRS 15. However, on 4 December 2015, the contract is modified with the result that the fixed consideration and expected costs increase by $110,000 and $60,000 respectively. The time allowable for achieving the bonus is extended by six months with the result that Tang concludes that it is highly probable that the bonus will be achieved and that the contract still remains a single performance obligation. Tang has an accounting year end of 30 November. (6 marks)Required:Discuss how the above two contracts should be accounted for under IFRS 15. (In the case of (b)(i), the discussion should include the accounting treatment up to 30 November 2016 and in the case of (b)(ii), the accounting treatment up to 4 December 2015.)Note: The mark allocation is shown against each of the items above.Professional marks will be awarded in question 4 for clarity and quality of presentation. (2 marks)
问题:Matthew Black is well aware that the achievement of the growth targets for the 2005 to 2007 period will depend onsuccessful implementation of the strategy, affecting all parts of the company’s activities.(c) Explain the key issues affecting implementation and the changes necessary to achieve Universal’s ambitiousgrowth strategy. (15 marks)
问题:You are the audit supervisor of Maple & Co and are currently planning the audit of an existing client, Sycamore Science Co (Sycamore), whose year end was 30 April 2015. Sycamore is a pharmaceutical company, which manufactures and supplies a wide range of medical supplies. The draft financial statements show revenue of $35·6 million and profit before tax of $5·9 million.Sycamore’s previous finance director left the company in December 2014 after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January 2015 who was previously a financial controller of a bank, and she has expressed surprise that Maple & Co had not uncovered the fraud during last year’s audit.During the year Sycamore has spent $1·8 million on developing several new products. These projects are at different stages of development and the draft financial statements show the full amount of $1·8 million within intangible assets. In order to fund this development, $2·0 million was borrowed from the bank and is due for repayment over a ten-year period. The bank has attached minimum profit targets as part of the loan covenants.The new finance director has informed the audit partner that since the year end there has been an increased number of sales returns and that in the month of May over $0·5 million of goods sold in April were returned.Maple & Co attended the year-end inventory count at Sycamore’s warehouse. The auditor present raised concerns that during the count there were movements of goods in and out the warehouse and this process did not seem well controlled.During the year, a review of plant and equipment in the factory was undertaken and surplus plant was sold, resulting in a profit on disposal of $210,000.Required:(a) State Maples & Co’s responsibilities in relation to the prevention and detection of fraud and error. (4 marks)(b) Describe SIX audit risks, and explain the auditor’s response to each risk, in planning the audit of Sycamore Science Co. (12 marks)(c) Sycamore’s new finance director has read about review engagements and is interested in the possibility of Maple & Co undertaking these in the future. However, she is unsure how these engagements differ from an external audit and how much assurance would be gained from this type of engagement.Required:(i) Explain the purpose of review engagements and how these differ from external audits; and (2 marks)(ii) Describe the level of assurance provided by external audits and review engagements. (2 marks)
问题:A corporate taxpayer has under-reported its taxable revenue in 2002 and hence underpaid value added tax (VAT) and enterprise income tax (EIT). In 2014, the taxpayer was charged by the tax authority with committing an act of tax evasion in 2002.Which of the following statements is correct?A.The taxpayer must pay the additional taxes due, plus a late payment surcharge and a penaltyB.There is no need for the taxpayer to pay any additional taxes, late payment surcharge or penalty as the statute of limitation is ten yearsC.The taxpayer must pay the additional taxes, but no late payment surcharge or penalty as the statute of limitation is ten years for late payment surcharge and penaltiesD.The taxpayer must pay the additional taxes and a late payment surcharge but not a penalty as the statute of limitation is five years for penalties
问题:A company predicted that the learning rate for production of a new product would be 80%. The actual learning rate was 75%. The following possible reasons were stated for this:(i) The number of new employees recruited was lower than expected(ii) Unexpected problems were encountered with production(iii) Unexpected changes to Health and Safety laws meant that the company had to increase the number of breaks during production for employeesWhich of the above reasons could have caused the difference between the expected rate of learning and the actual rate of learning?A.All of the aboveB.(ii) and (iii) onlyC.(i) onlyD.None of the above
问题:This scenario summarises the development of a company called Rock Bottom through three phases, from its founding in 1965 to 2008 when it ceased trading.Phase 1 (1965–1988)In 1965 customers usually purchased branded electrical goods, largely produced by well-established domestic companies, from general stores that stocked a wide range of household products. However, in that year, a recent university graduate, Rick Hein, established his first shop specialising solely in the sale of electrical goods. In contrast to the general stores, Rick Hein’s shop predominantly sold imported Japanese products which were smaller, more reliable and more sophisticated than the products of domestic competitors. Rick Hein quickly established a chain of shops, staffed by young people who understood the capabilities of the products they were selling. He backed this up with national advertising in the press, an innovation at the time for such a specialist shop. He branded his shops as ‘Rock Bottom’, a name which specifically referred to his cheap prices, but also alluded to the growing importance ofrock music and its influence on product sales. In 1969, 80% of sales were of music centres, turntables, amplifiers and speakers, bought by the newly affluent young. Rock Bottom began increasingly to specialise in selling audio equipment.Hein also developed a high public profile. He dressed unconventionally and performed a number of outrageous stunts that publicised his company. He also encouraged the managers of his stores to be equally outrageous. He rewarded their individuality with high salaries, generous bonus schemes and autonomy. Many of the shops were extremely successful, making their managers (and some of their staff) relatively wealthy people.However, by 1980 the profitability of the Rock Bottom shops began to decline significantly. Direct competitors using a similar approach had emerged, including specialist sections in the large general stores that had initially failed to react to the challenge of Rock Bottom. The buying public now expected its electrical products to be cheap and reliable.Hein himself became less flamboyant and toned down his appearance and actions to satisfy the banks who were becoming an increasingly important source of the finance required to expand and support his chain of shops.Phase 2 (1989–2002)In 1988 Hein considered changing the Rock Bottom shops into a franchise, inviting managers to buy their own shops (which at this time were still profitable) and pursuing expansion though opening new shops with franchisees from outside the company. However, instead, he floated the company on the country’s stock exchange. He used some of the capital raised to expand the business. However, he also sold shares to help him throw the ‘party of a lifetime’ and to purchase expensive goods and gifts for his family. Hein became Chairman and Chief Executive Officer (CEO) of the newly quoted company, but over the next thirteen years his relationship with his board and shareholders became increasingly difficult. Gradually new financial controls and reporting systems were put in place. Most of the established managers left as controls became more centralised and formal. The company’s performance was solid but unspectacular. Hein complained that ‘business was not fun any more’. The company was legally required to publish directors’ salaries in its annual report and the generous salary package enjoyed by the Chairman and CEO increasingly became an issue and it dominated the 2002 Annual General Meeting (AGM). Hein was embarrassed by its publication and the discussion it led to in the national media. He felt that it was an infringement of his privacy andcivil liberties.Phase 3 (2003–2008)In 2003 Hein found the substantial private equity investment necessary to take Rock Bottom private again. He also used all of his personal fortune to help re-acquire the company from the shareholders. He celebrated ‘freeing Rock Bottom from its shackles’ by throwing a large celebration party. Celebrities were flown in from all over the world to attend. However, most of the new generation of store managers found Hein’s style. to be too loose and unfocused. He became rude and angry about their lack of entrepreneurial spirit. Furthermore, changes in products and how they were purchased meant that fewer people bought conventional audio products from specialist shops. The reliability of these products now meant that they were replaced relatively infrequently. Hein, belatedly, started to consider selling via an Internet site. Turnover and profitability plummeted. In 2007 Hein again considered franchising the company,but he realised that this was unlikely to be successful. In early 2008 the company ceased trading and Hein himself,now increasingly vilified and attacked by the press, filed for personal bankruptcy.Required:(a) Analyse the reasons for Rock Bottom’s success or failure in each of the three phases identified in thescenario. Evaluate how Rick Hein’s leadership style. contributed to the success or failure of each phase.(18 marks)(b) Rick Hein considered franchising the Rock Bottom brand at two points in its history – 1988 and 2007.Explain the key factors that would have made franchising Rock Bottom feasible in 1988, but would havemade it ‘unlikely to be successful’ in 2007. (7 marks)
问题:(ii) Recommend further audit procedures that should be carried out. (4 marks)
问题:Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April. The company purchases its raw materials from a wide range of suppliers. Below is a description of Cherry’s purchasing system.When production supervisors require raw materials, they complete a requisition form. and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested. Staff in the purchase ordering department use the requisitions to raise sequentially numbered purchase orders based on the approved suppliers list, which was last updated 24 months ago. The purchasing director authorises the orders prior to these being sent to the suppliers.When the goods are received, the warehouse department verifies the quantity to the suppliers despatch note and checks that the quality of the goods received are satisfactory. They complete a sequentially numbered goods received note (GRN) and send a copy of the GRN to the finance department.Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a manual file until the end of each week. He then inputs them into the purchase ledger using batch controls and gives each invoice a unique number based on the supplier code. The invoices are reviewed and authorised for payment by the finance director, but the actual payment is only made 60 days after the invoice is input into the system.Required:In respect of the purchasing system of Cherry Blossom Co:(i) Identify and explain FIVE deficiencies; and(ii) Recommend a control to address each of these deficiencies.Note: The total marks will be split equally between each part.
问题:(iii) Flexibility. (3 marks)
问题:Hindberg is a car retailer. On 1 April 2014, Hindberg sold a car to Latterly on the following terms:The selling price of the car was $25,300. Latterly paid $12,650 (half of the cost) on 1 April 2014 and would pay the remaining $12,650 on 31 March 2016 (two years after the sale). Hindberg’s cost of capital is 10% per annum.What is the total amount which Hindberg should credit to profit or loss in respect of this transaction in the year ended 31 March 2015?A.$23,105B.$23,000C.$20,909D.$24,150
问题:Moonstar Co is a property development company which is planning to undertake a $200 million commercial property development. Moonstar Co has had some difficulties over the last few years, with some developments not generating the expected returns and the company has at times struggled to pay its finance costs. As a result Moonstar Co’s credit rating has been lowered, affecting the terms it can obtain for bank finance. Although Moonstar Co is listed on its local stock exchange, 75% of the share capital is held by members of the family who founded the company. The family members who are shareholders do not wish to subscribe for a rights issue and are unwilling to dilute their control over the company by authorising a new issue of equity shares. Moonstar Co’s board is therefore considering other methods of financing the development, which the directors believe will generate higher returns than other recent investments, as the country where Moonstar Co is based appears to be emerging from recession.Securitisation proposalsOne of the non-executive directors of Moonstar Co has proposed that it should raise funds by means of a securitisation process, transferring the rights to the rental income from the commercial property development to a special purpose vehicle. Her proposals assume that the leases will generate an income of 11% per annum to Moonstar Co over a ten-year period. She proposes that Moonstar Co should use 90% of the value of the investment for a collateralised loan obligation which should be structured as follows:– 60% of the collateral value to support a tranche of A-rated floating rate loan notes offering investors LIBOR plus 150 basis points– 15% of the collateral value to support a tranche of B-rated fixed rate loan notes offering investors 12%– 15% of the collateral value to support a tranche of C-rated fixed rate loan notes offering investors 13%– 10% of the collateral value to support a tranche as subordinated certificates, with the return being the excess of receipts over payments from the securitisation processThe non-executive director believes that there will be sufficient demand for all tranches of the loan notes from investors. Investors will expect that the income stream from the development to be low risk, as they will expect the property market to improve with the recession coming to an end and enough potential lessees to be attracted by the new development.The non-executive director predicts that there would be annual costs of $200,000 in administering the loan. She acknowledges that there would be interest rate risks associated with the proposal, and proposes a fixed for variable interest rate swap on the A-rated floating rate notes, exchanging LIBOR for 9·5%.However the finance director believes that the prediction of the income from the development that the non-executive director has made is over-optimistic. He believes that it is most likely that the total value of the rental income will be 5% lower than the non-executive director has forecast. He believes that there is some risk that the returns could be so low as to jeopardise the income for the C-rated fixed rate loan note holders.Islamic financeMoonstar Co’s chief executive has wondered whether Sukuk finance would be a better way of funding the development than the securitisation.Moonstar Co’s chairman has pointed out that a major bank in the country where Moonstar Co is located has begun to offer a range of Islamic financial products. The chairman has suggested that a Mudaraba contract would be the most appropriate method of providing the funds required for the investment.Required:(a) Calculate the amounts in $ which each of the tranches can expect to receive from the securitisation arrangement proposed by the non-executive director and discuss how the variability in rental income affects the returns from the securitisation. (11 marks)(b) Discuss the benefits and risks for Moonstar Co associated with the securitisation arrangement that the non-executive director has proposed. (6 marks)(c) (i) Discuss the suitability of Sukuk finance to fund the investment, including an assessment of its appeal to potential investors. (4 marks)(ii) Discuss whether a Mudaraba contract would be an appropriate method of financing the investment and discuss why the bank may have concerns about providing finance by this method. (4 marks)
问题:(b) Given his recent diagnosis, advise Stuart as to which of the two proposed investments (Omikron plc/Omegaplc) would be the more tax efficient alternative. Give reasons for your choice. (3 marks)
问题:Mr Li, a photographer, had his photos published in the July 2014 edition of the tourism journal. The total fee was RMB20,000 and the publisher agreed to pay Mr Li by two instalments, one of RMB18,000 in June 2014 and the balance of RMB2,000 in August 2014. The same photos were republished by the government in a promotion brochure in August 2014 and Mr Li was paid a further fee of RMB3,000 by the government.What is the total amount of individual income tax (IIT) which Mr Li will pay on the above incomes?A.RMB2,492B.RMB2,576C.RMB2,548D.RMB3,680