SPA352 Auditing and Assurance Assessment Help
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- Words: 2500
The following are questions relating mainly to topics covered in the latter part of the subject but relying on concepts learned in the earlier part of the subject . You need to answer the separate parts of the questions considering all issues relating to each situation .There is a 2500 word limits imposed question and marks are provided based on the quality of the answers not the length.
Gestik Ltd , a diversified manufacturer , has three divisions that operate throughout Australia .Gestik has always allowed its divisions to operate autonomously , with head office intervention occurring only when planned results were not obtained . Head office management has high integrity,but the board of directors and audit committee are not very active . Gestik has a policy of hiring very competent people and has an ethical code of conduct , but there is little monitoring of compliance by employees . Management is relatively conservative in terms of accounting principles and practices , but employee compensation packages depend largely on performance.
Gerry Harvee is the general manager of the electronics division , which produces a variety of standardised parts for small appliances . Gerry has been the general manager for the past four years and each year he has been able to improve the profitability of the division . His compensation is based largely on the division’s profitability . Much of the improvement in profitability has come through aggressive cost cuts , including a substantial reduction in monitoring activities over inventory.
During the past year , a new competitor has entered the electronics division’s markets and has offered substantial price reductions in an effort to obtain market share . Gerry has responded to the competitor’s actions by matching the price cuts to try and maintain Gestik’s market share. However Gerry is very concerned , as he cannot see any other areas where costs can be reduced so that the division’s growth and profitability can be maintained. A large portion of his salary depends upon the profit figure for the year as he has a relatively low basic salary with large bonuses dependent upon profit performance.
Gerry has decided that one way to make the division more profitable is to make changes to the way inventory is managed .He could do this by reducing the number of staff in the inventory purchasing processes so that all purchasing is done by the purchasing officer with all purchases made from the previous supplier of the items with the purchasing officer raising all purchase orders and all stock received to be accepted by the security guard at the gate.
The security guard accepts all orders by initialling all items received on the delivery docket but does not open any containers or boxes received. The delivery dockets are retained in the warehouse. The purchase orders are taken to the accounts payable clerk once a week.
The accounts payable clerk draws a cheque once she receives an invoice from the supplier. The accounts payable clerk posts all mail on her way home from work.
Evaluate the strengths and weaknesses of the above for Gestik Ltd
The following are independent situations for the auditor when he carries out audits in different businesses in the year ended 30 June 2021.
(a) The Kid’s Help Line is a charity that provides assistance to children who are in unfortunate situations by providing short term financial assistance, counselling and other help for children who need it. During COVID its donations have declined by 55% and so it has had to reduce its services and a number of its staff. This has meant that receipts have only been provided to donors who have requested them and the accounting records are only being updated when the accountant comes in once a week when the Administrative officer gives everything to the accountant .Due to the effects of COVID these are the only remaining staff with any administrative /accounting knowledge remaining at The Kid’s Help Line.
(b) Wally Ltd is a building contractor with a varying workload depending on the state of the economy and consumer confidence . Due to the irregularity of its building projects. Wally also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. Wally then sells these on its own account.Your analysis suggests that the apportionment of costs between houses and units has between kept low with a substantial impact on increasing profits . It has also resulted in the material overvaluation of the unsold property . The directors of the company maintain that the stock of properties is correctly valued.
(c) The Big Event Company arranges for popular entertainers to perform in Australia . The band Generator was booked by the Big Event company to play in various venues across the country with the contract specifying payment was to be made in US dollars. To reduce costs the Big Event company decided not to hedge the amounts that would be payable. Subsequent to year end the Australian dollar fell against the US dollar and a substantial loss was predicted . The management of the Big Event Company tried unsuccessfully to renegotiate the band’s contract for the tour and has been unable to obtain finance to cover the expected shortfall. The Big Event Company has now cancelled the tour and expects a substantial claim from Generator. It is clear to you, as the auditor , that the Big Event Company does not have the funds to meet such a loss . The Big Event Company has disclosed all this information in its financial statements ,including its difficulties in meeting the potential payout for the cancelled tour in its financial statements .
(d) The Rally company limited operated as a small proprietary limited company from 2016 until 2020 when it sought and was granted public company status .The company has previously prepared financial statements but has not followed the Australian accounting standards until 2019 when the company employed a qualified accountant to prepare the company’s financial statements .From then the company followed the accounting standards when the financial statements were prepared .
(e) The Argus company, has been a successful company until last year , 2020 , and when the Coronavirus came it suffered a substantial reduction in profit with a $2million profit declining to a $8 million loss . The company was able to access a small payment from the Government during 2020 but this has now stopped . Argus has had to reduce its staff by 80% and there is limited segregation of duties and the accountant is quite concerned about its ability to continue as a going concern but its directors and CEO have prepared the financial statements on the basis that they think Argus will be able to continue operating provided they get a package of financial assistance which currently is only available in very limited circumstances.
Assuming all amounts involved are material identify and discuss the most likely auditor’s opinion which should be issued for each of the above situations providing reasons/explanation for your opinion.
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