ACCA F8 - Audit and Assurance Revision Kit 2016

It is expected that work in progress will be insignificant this year, but there will be a material amount of
finished goods awaiting despatch. Anna Jones will estimate the value of these finished goods and has said
she will take into account the order value when doing so.
There has been steady growth in sales in recent years and, in January 20X0 Sleeptight purchased a building
close to its existing workshop. Anna and Sophie plan to turn this into another workshop which should more
than double its existing manufacturing capacity. The new workshop is currently undergoing extensive
refurbishment in order to make it suitable for bed manufacturing.
The purchase of the new premises was funded by a bank loan repayable in monthly instalments over 12
years and has covenants attached to it. These covenants are largely profit related measures and if they are
breached the bank has the option to make the remaining loan balance repayable immediately.
Required
(c)
(i)
(ii)
Identify and explain EIGHT audit risks in respect of the financial statements of Sleeptight for the year
ending 31 March 20X0. For each risk suggest a suitable audit response.
(16 marks)
Describe Mill & Co’s responsibilities in relation to the physical inventory count that will take place at
the year end
(4 marks)
The workshop currently in use is owned by the company and will be included in the financial statements at
its revalued amount rather than at cost. The company has always adopted this policy for land and buildings
and the valuation of the workshop is to be brought up to date at 31 March 20X0 by an external valuer.
Required
Describe the procedures the auditor should carry out to gain evidence over the adequacy of the value of the
workshop and the related disclosures included in the financial statements.
(4 marks)
(Total = 30 marks)
40 Raisin 39 mins
You are an audit senior in Raisin & Co, a firm of Chartered Certified Accountants. You are temporarily assigned as
audit senior to the audit of Sultana Co, a scaffolding specialist supplying the construction industry, after the senior
on the engagement fell ill. The final audit of Sultana Co for the year ended 30 September 20X9 is nearing
completion, and you are now reviewing the audit files and discussing the audit with the junior members of the audit
team.
Sultana Co’s draft financial statements show revenue of $12.5 million, net profit of $400,000, and total assets of
$78 million.
The following information has come to your attention during your review of the audit files.
After the year end, Cherry Co, a major customer with whom Sultana Co has several significant contracts,
announced its insolvency. Procedures to shut down the company have commenced. The administrators of Cherry
Co have suggested that the company may be able to pay approximately 25% of the amounts owed to Sultana Co. A
trade receivable of $300,000 is recognised on Sultana Co's statement of financial position in respect of this
customer.
In addition, one of the junior members of the audit team has voiced concerns over how the audit had been
managed. The junior said the following.
'I have only worked on two audits prior to being assigned the audit team of Sultana Co. I was expecting to attend a
meeting at the start of the audit, where the partner and other senior members of the audit team discussed the audit,
but no meeting was held. In addition, the audit manager has been away on holiday for three weeks, and left a senior
in charge. However, the senior was busy with other assignments, so was not always available.
'I was given the task of auditing the goodwill which arose on an acquisition made during the year. I also worked on
the audit of inventory, and attended the inventory count, which was quite complicated, as Sultana Co has a lot of
work-in-progress. I tried to be as useful as possible during the count, and helped the client's staff count some of
the raw materials. As I had been to the inventory count, I was asked by the audit senior to challenge the finance
director regarding the adequacy of the provision against inventory, which the senior felt was significantly
understated.
Questions 19