ACCA F8 - Audit and Assurance Revision Kit 2016

AUDIT REPORTING
Questions 100 – 117 cover Audit reporting, the subject of Part E of the BPP Study Text for F8.
Chestnut (06/15) (amended) (CBE)
20 mins
The following scenario relates to questions 100 – 104.
You are the audit manager of Chestnut & Co and are reviewing the key issues identified in the files of two audit
clients.
The first audit client is Palm Industries Co (Palm), a listed company. Palm’s year end was 31 March 20X5 and the
draft financial statements show revenue of $28.2m, receivables of $5.6m and profit before tax of $4.8m. The
fieldwork stage for this audit has been completed.
100 A customer of Palm owed an amount of $350,000 at the year end. Testing of receivables in April highlighted
that no amounts had been paid to Palm from this customer as they were disputing the quality of certain
goods received from Palm. The finance director is confident the issue will be resolved and no allowance for
receivables was made with regards to this balance.
Which THREE of the following audit procedures should be performed in order to form a conclusion on
whether the amendment is required to Palm’s 20X5 financial statements?
Review whether any payments have subsequently been made by this customer since the audit
fieldwork was completed
Discuss with management whether the issue of quality of goods sold to the customer has been
resolved, or whether it is still in dispute
Vouch the balance owed by the customer at the year end to sales invoices
Review the latest customer correspondence with regards to an assessment of the likelihood of the
customer making payment
101 The auditor’s report is due to be signed in the next week or so. You have concluded that the disputed
balance is likely to be irrecoverable, but the directors have not made any changes to the financial statements
in respect of this.
Which of the following options correctly summarises the impact on the auditor’s report if the issue
remains unresolved?
Unmodified with key audit matters section
Disclaimer of opinion
Qualified ‘except for’
Adverse opinion
The second audit client is Ash Trading Co (Ash). Ash is a new client of Chestnut & Co, its year end was 31 January
20X5 and the firm was only appointed auditors in February 20X5, as the previous auditors were suddenly unable to
undertake the audit. The fieldwork stage for this audit is currently ongoing.
102 The inventory count at Ash’s warehouse was undertaken on 31 January 20X5 and was overseen by the
company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count.
Detailed inventory records were maintained but it was not possible to undertake another full inventory count
subsequent to the year end.
The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and
inventory of $510,000.
52 Questions