Accounting homework help. Auditing Assignment
Word limit
Question 1- 500 to 700
Question 2, part c- Max 250
QUESTION 1
You are the audit senior on the Pet Care Pty Limited (Pet Care) audit. Pet Care is a distributor of pet care products including shampoos, lotions and a small range of toys. Pet Care uses an on-line computer system. No goods are manufactured in-house; rather, Pet Care maintains a stock of raw materials and sub-contracts the manufacture of its products to third parties. Approximately 50 suppliers and sub-contractors are used and all have proven to be reliable. You have made the following notes about the inventory system:
Procedures for raw materials
- Separate systems, staff and warehouses are maintained for both raw materials and finished goods.
- Purchase orders are automatically generated by the computer when stocks of any raw material fall below 70% of the prior month’s usage. The purchase orders contain the following details:
- date;
- supplier name and address;
- raw material needed.
- Three copies of the purchase order are produced and distributed as follows:
Copy 1—to warehouse to enable follow up of late orders.
Copy 2—filed by accounts clerk in date order.
Copy 3—sent to supplier.
- When raw material stocks are received, the bar codes attached to the delivery boxes by the supplier are scanned into the system. A two-part Goods Received Note (GRN) is then produced:
Copy 1—matched to warehouse copy of purchase order by stores staff.
Copy 2—filed by accounts clerk.
The scanning process is aborted if the codes do not match those on the Masterfile.
Procedures for finished goods
- Production orders are automatically generated when finished goods fall below 60% of the prior month’s sales. The production orders contain the following details:
- date;
- sub-contractor’s name;
- raw materials required;
- finished goods needed.
- Two copies of the production order are produced:
Copy 1—to raw materials store for use as a picking slip, then it is packed with goods and sent to the supplier.
Copy 2—filed by production controller in date order.
- When the finished goods stocks are received, the bar codes attached to the delivery boxes by the supplier are scanned into the system. A two-part GRN is then produced:
Copy 1—matched to production controller’s copy of production order
. Copy 2—filed by accounts clerk. The scanning process is aborted if the codes to not match those on the Masterfile.
General notes
- The computer automatically selects the supplier of both raw materials and finished goods based on:
- the latest price (as per their most recent invoice).
- their delivery times (based on the number of days between the date the purchase/ production order is raised and the date the goods are scanned by the warehouse).
- Password access is as follows:
Stores staff (raw materials): Purchase order printing for raw materials only.
GRN printing for raw materials.
Stores staff (finished goods): GRN printing for finished goods.
Production controller: Production order printing, Masterfile amendments.
Accounts clerk: Masterfile amendments.
Masterfile amendments
- The stock masterfile contains details of:
- existing stock items including codes and warehouse location.
- approved suppliers and sub-contractors.
- Orders will only be generated to suppliers and sub-contractors recorded on the masterfile.
- Masterfile changes are made by the production controller for both raw materials and finished goods inventory. A masterfile amendment form is completed by the production controller as a record of the changes made.
REQUIRED:
- Identify six (6) weaknesses in the internal controls described. Discuss the implications of each of the weaknesses you have identified.
- Assume your IT audit division is to perform testing of controls for the inventory systems described. Identify two tests that you would recommend they perform.
QUESTION 2
In February 2012, the Australian Accounting Standards Boards decided at its meeting to propose the withdrawal of AASB 1031 Materiality. There were several reasons for this proposal which includes: there is no International Reporting Standard equivalent and it does not look like there will be, since 2005 there has been the gradual withdrawal of additional Australian guidance from a number of Australian Accounting Standards, and there is now an updated guidance on materiality in the IASB Conceptual Framework.
The major impact of the withdrawal of AASB 1031 is the removal of the specific quantitative guidance for materiality. The withdrawal of AASB 1031 became effective to annual reporting beginning on or after 1 July 2015.
REQUIRED:
- Summarize the significant changes and impact on financial reporting with AASB 1031 Materiality (issued by the Australian Accounting Standards Boards – AASB) from 1995 to 2015. (8 Marks)
You can present your answer using a table format:
Year/Years or Time period | Changes in AASB1031 Materiality Standard | Impact on financial reporting |
- Prior to the withdrawal of AASB 1031 and with reference to the AASB 1031 Materiality (issued by the Australian Accounting Standards Boards – AASB) and the ASA 320 Materiality in Planning and Performing an Audit and ASA 450 Evaluation of Misstatements Identified during an Audit (issued by the Auditing and Assurance Standards Board – AUASB), (12 Marks):
- Define materiality.
- Outline the qualitative and quantitative guidelines of materiality.
- How the concepts and constructs of “materiality” influence the auditors’ professional judgment on misstatements?
- Post withdrawal of AASB 1031, would this withdrawal of AASB1031 Materiality Standards:
- harmonise/bring uniformity to auditors’ assessment of materiality misstatements or would this bring disparity to auditors’ assessment of misstatements? Why so?
- What other influence, if any, this would bring to the auditors’ judgment on misstatements and what impacts or implications this would have on the usefulness of financial reports? Discuss your answer and rationale.
(Support your answers with the relevant Australian Accounting Standards and Australian Auditing Standards as well as published Peer-reviewed Academic Journals and Articles.) (10 Marks)
NOTE: In answering Question 2, use Harvard referencing style and support your answers with relevant accounting and auditing standards as well as published peer-reviewed academic journals. A minimum of 5 peer-reviewed academic journals is expected. (Hint: this is a great opportunity to utilise the University’s Library Services online such as Library Search, Advance Search, eJournals and Databases such as EBSCOhost, etc.)