Wednesday, November 12, 2014
Saturday, November 1, 2014
Audit & Assurance May-June 2013
AUDIT & ASSURANCE Time Allowed – 2½ hours Total Marks – 100
[N.B -
The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the quality of language
and of the way in which the answers are presented. Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
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1.
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a)
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Your
firm has been invited to submit proposal for the audit
of Comfort Ltd.
which is engaged in trading of certain brand of medical equipment in
Bangladesh. Your firm is the current
auditors
of
Easy Ltd., a company doing the same business of supply of similar brand of medical
equipment in Bangladesh.
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Identify
and explain the principal ethical issue that you may need to consider when deciding whether or not to propose for the audit of Comfort Ltd., and state the procedures you
may
need to implement in
the event that your proposal was successful.
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4
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b)
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Your firm has issued unqualified opinion on completion of audit of
a private limited company.
Managing Director
of
the company asked the reason for using the words “true and fair” rather than “correct” given that the audit team spent
one month in examining all the accounting
records of the company.
Explain the situation.
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4
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c)
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Your firm has been appointed as the external auditor of ABC Ltd. for the year ended 31
December 2012.Its principal
activity is to manufacture and sell
of textile chemicals. BD Textile
Mills Ltd. was the
major customer of ABC Ltd. Sales to BD Textile Mills Ltd. during
the previous year 2011 amounted to Tk.90,000,000 which
was around 60% of the total sales of ABC Ltd. during the previous year. BD Textile Mills Ltd. lost its major overseas customers in
2012. Sales
of BD Textile Mills Ltd. dropped significantly during the year
2012.
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The company made a loss for the year ended 31 December 2012, but the
profit forecast indicates a return to profitability for the year ended
31
December 2013. The loss in 2012 was due to redundancy and sudden loss
of its major
customer, BD Textile
Mills Ltd.
The company is now focusing on cost reduction through using alternative raw materials
and obtaining other potential customers.
There are plans to develop product, market and to expand the customer
base, and contracts have recently been agreed with several new customers. The company has
also negotiated a new contract
with major supplier, which has resulted in reduced prices in return for committed monthly purchases.
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During the year
ended 31 December 2012 the company suffered
severe negative cash flow
but managed to stay
within the overdraft facility by
delaying payments
to trade payables and VAT Authority. The company has a bank loan which is due for repayment in April 2013 and is negotiating with its
bankers for a
replacement loan required
to
repay the present loan.
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Required:
(i) Explain what is meant by the `going concern’ concept
and why the auditor should consider whether a company is a
going concern
in the light of BSA
570. Describe the procedures that an auditor would undertake to satisfy himself on the statement of going concern.
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7
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(ii) Identify
the matters to be considered
when reviewing the profit
and cash flow forecasts
prepared by the company including other considerations,
in order to assess whether the
company is a going concern.
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8
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(iii) Discuss
the
implications for the audit
report
of ABC
Ltd. in respect of the
financial statement for the
year ended 31 December 2012,
if the negotiations for the replacement loan
are not completed by the time the
audit report is signed.
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5
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