FIN6002: Explain the FIVE advantages and FIVE disadvantages for Wirely Co of outsourcing: Audit Assignment, AU, UK

Question 2

A. Wirely Co, a well-established wholesaler of electrical materials for more than 15 years has recently been listed in the London Stock Exchange (LSE). The company operates in three regions of England, the Northeast, Central and Southwest. The company maintains a small audit team located in a small office in the Central region.

The board of directors have recently decided to expand the audit team to include more specialist skills in order to cater for the
growing trading activities, which we see another two small teams set up for the other regions.

However, the directors are unsure whether to recruit more internal auditors or to outsource the whole function.

Required:
Explain the FIVE advantages and FIVE disadvantages for Wirely Co of outsourcing the internal audit department instead of expanding the teams.
(10 marks)

B. Damien Ltd is a printing and publishing company planning to raise finance for its recently expanding business. The directors of the company are considering listing the company on the London Stock Exchange in order to raise much-needed capital. After due consultation with the company’s external auditors, the management was advised about some compliance issues with corporate governance provisions which include establishing an audit committee.

Consequently, the finance director is currently looking to appoint non-executive directors for the audit committee. Two potential non-directors have been identified by the finance director for the committee. The first is currently Manas Selmon, an executive director of a multi-national conglomerate who also sits on the audit committee of another company as a non-executive director.

He has agreed to a fee which will not be related to profit. Another potential candidate that the finance director is considering is Ethan Browne, the brother-in-law who is currently an executive director of a small printing company. He is willing to accept the role and has expressed interest in a fixed eight-year contract.

Required:
(i) Explain SEVEN benefits of Damien Ltd of establishing an audit committee
(ii) Discuss the issues to be considered in appointing the two potential candidates as nonexecutive directors of Damien Ltd.
Note: The total marks will be split equally between each nominee.

More Same code FIN6002 Assessment Tasks

Tutors have set other Same code FIN6002 tasks on this module too. They are listed below so you can see every version of the brief on one page.

FIN6002: Describe TWO methods of documenting the sales and despatch system, and for each explain: Audit Assignment, AU, UK

Question 4

You are a member of the recently formed internal audit of Signal Co. The company manufactures electrical materials which are supplied to large and small retailers. The management of those charged with governance of Signal Co have concerns about the effectiveness of their sales and despatch system and have asked internal audit to document and review the system. Sales and despatch system Sales orders are mainly placed through Signal’s website, but some are made via telephone.

Online orders are automatically checked against inventory records for availability; telephone orders, however, are checked manually by order clerks after the call. A follow-up call is usually made to customers if there is insufficient inventory. When taking the telephone orders, clerks note down the details on plain paper and afterwards they can complete a three-part pre-printed order form. These forms are not sequentially numbered and are sent manually to both the despatch and the accounts departments.

As the company is expanding, customers are able to place online orders which will exceed their agreed credit limits of 15%. Online orders are automatically forwarded to the despatch and accounts department.

A daily pick list is printed by the despatch department, and this is used by the warehouse team to despatch goods. The goods are accompanied by a despatch note and all customers are required to sign a copy of this. On return, the signed despatch notes are given to the warehouse team to file.

The sales quantities are entered from the despatch notes and the authorised sales prices are generated by the invoicing system. If a discount has been given, this has to be manually entered by the sales clerk into the invoice. Due to the expansion of the company, and as a large number of sales invoices, extra account staff have been asked to help out temporary with producing the sales invoices. Normally it is only two sales clerks who produce the sales invoices.

Required:
(i) Describe TWO methods of documenting the sales and despatch system, and for each explain an advantage and disadvantage of using this method.
(5 marks)

(ii) Explain FIVE control objectives of Signal Co sales and despatch system.
(5 marks)

(iii) Identify and explain SIX deficiencies in Signal Co’s sales and despatch system and provide a recommendation to address each of these deficiencies.

FIN6002: State and explain the 5 ethical principles outlined by the International Ethics Standards Board for Accountants: Audit Assignment, AU, UK

Question 3

You work for a firm of chartered accountants who specialise in external audit, tax advice, and retail systems. Most of your clients are small retail direct sales companies.

A large national company, Prina Plc, which operates in the same industry as several of your clients has approached you to work on their external audit after a disagreement and challenges faced with the previous auditor. They have offered a fee that would constitute 25% of the total revenue of your firm, but only on the condition that the work was completed within 3 weeks of their year-end.

Required:
a) State and explain the 5 ethical principles outlined by the International Ethics Standards Board for Accountants (IESBA) with examples for each principle.
(10 marks)

b) If your firm accepts this engagement state FIVE key points that must be covered by the engagement letter per ISA 210, then briefly explain the significance of the engagement letter.
(5 marks)

c) Discuss four potential ethical and other issues that your firm may face in the above scenario and conclude whether or not your firm should accept the appointment.

FIN6002: Describe the information you will seek, and procedure you will perform in order to understand the entity: Audit Assignment, AU, UK

Question 1
A. You are an audit supervisor responsible for understanding the entity and its environment and assessing the risk of material misstatements for the audit of Pharma Co for the year ending 31 July 2022. Pharma Co is a company listed on a stock exchange.

The company is a wholesaler engaged in the supplies of pharmaceutical products to a wide range of stores across the Northeast of England, under a variety of different brand names. You have worked on the audit of this client for many years as an audit junior.

Required:
Describe the information you will seek, and procedure you will perform in order to understand the entity and its environment and assess the risk for the audit of Pharma Co for the year ending 31 July 2022.
(10 marks)

B. You are now nearing the completion of the audit of Pharma Co for the year ending 31 July 2022. The draft financial statements have been produced and you have been given the responsibility of performing a review of the audit files before they are passed to the audit manager and the audit partner for their review.

You have been asked to concentrate on the proper completion of the audit working papers. Some of the documents have been produced electronically while others printed out for you.

Required:
Describe the types of audit working papers you should expect to see in the audit files and the features of those working papers that show that they have been properly completed.

FIN6002: Jane Goldsmith Plc, a listed company, is a leading UK retailer of up-market clothing, shoes and accessories sold primarily: Audit Assignment, AU, UK

Question 2

Jane Goldsmith Plc, a listed company, is a leading UK retailer of up–market clothing, shoes and accessories sold primarily under the “Jane Goldsmith” brand name. The brand represents classic styles, updated to reflect current fashion trends. Company stores offer a full range of
business and casual outfits, shoes and accessories coordinated as part of a total styling strategy. The company places a significant emphasis on customer service; sales associates are trained to assist customers in item selection and wardrobe coordination, helping them achieve a classic yet chic and current look, while maintaining the customers’ personal styles.

The company’s core business is focused on relatively affluent, fashion-conscious professional women with limited shopping time. Substantially all of the company’s merchandise is developed in-house by its product design and development teams. Production of merchandise is sourced to independent manufacturers in 14 countries. Approximately 35%, 15% and 5% of the company’s merchandise is manufactured in China, Thailand and Indonesia respectively.

The company operates 80 stores countrywide (under operating leases), having closed down 35 stores over the last two years. Merchandise is distributed to the company’s retail stores through three distribution centres spread across the UK.

jane Goldsmith Plc. remained profitable amid the global financial crisis and as at 31 January 2023, the company had gross revenue of £1.3 billion and net profit of £121 million. The ompany recognises revenue as and when merchandise is sold to clients and a provision for estimated returns is established when sales are recorded. In terms of expenses, the company spends a lot on advertising and marketing; (Advertising costs were approximately £65 million for the year to 31 January 2023); salaries and wages (£245 million as at 31 January 2023), among others. The company’s non-current assets as at 31 January 2023 are valued at £1.1 billion.

However, the company intends to focus on reducing its cost structure over the next financial year, in light of the volatile nature of the current economic environment. Your firm, Holmes and Poirot, is in the initial planning phase of the audit for the year ended 31 January 2023. As the audit senior, you have been assigned responsibility for determining materiality. The audit partner has performed a preliminary analysis of the company and its performance and believes the likelihood of fraud is low.

Required:
a) Detail the matters to which you would pay particular attention in obtaining the required knowledge of the business and in developing your audit plan for the year ended 31 January 2013.

b) Identify and describe FOUR matters that give rise to audit risks associated with the audit of Jane Goldsmith Plc. 

c) Explain the concept of “materiality” and its importance during the audit planning process.

FIN6002: You are an audit senior in the firm, Grant Smithson & Partners, and have been assigned the audit of Handel’s World Ltd: Audit Assignment, AU, UK

Question 1

You are an audit senior in the firm, Grant Smithson & Partners, and have been assigned the audit of Handel’s World Ltd, for the year ended 31 March 2023. Handel’s World Ltd has been in operation for fifteen years, but has only just appointed Grant Smithson & Partners as its external auditors. The company operates four stores countrywide, selling a quality range  of musical instruments such as; electric or acoustic guitars, brass instruments; drums, percussion instruments; keyboards, pianos, and instrument accessories among others.

For several years, Handel’s World Ltd has maintained perpetual records of inventory at each of its four stores. Nevertheless, it has continued to determine closing inventory by stocktaking at or near the year end. In the course of the year end audit you hold discussions with the company’s chief accountant, and she informs you that the company is intending to dispense with annual stocktaking and to rely on the perpetual records in determining closing inventory.

The company operates a centralised computer system networked to terminals and point of sale registers in each store. Last year’s audit file indicates that control risks over purchase and sale transactions were assessed as low for occurrence, completeness and measurement assertions. However, the control risk assessment did not extend to the recording of sale and purchase transactions into the inventory records since inventory was determined by physical count. The description of the accounting system shows inventory as being delivered directly to each store.

The manufacturers attach a bar–coded tag to each item. On delivery, store personnel physically check each item with the description coded on the tag. They then scan the tags. The networked computer verifies the goods against the order and records them on the store’s inventory records. At the point of sale, the tag is again scanned which both records the sale and removes the item from inventory records.

During the past year, the company’s computing department has rewritten the inventory control system to incorporate inventory costs as well as quantities. The computer system now records cost at the point of delivery. On sale, the computer determines cost of sale on a first–in–first– out (FIFO) basis and recalculates the cost of inventory on hand at each Store.

Required:
a) Explain why Inventory is considered a major area of importance for the external auditor in carrying out an audit of financial statements.

b) Describe the substantive procedures you would perform, both during the year and as at year end, in order to verify the completeness and existence of inventories.

c) Distinguish between “auditing around the computer” and “auditing through the computer”.