1. Without reference to the scenario, discuss the risk-based approach to
external audit, illustrating the audit risk concept by giving examples of
attributes which may be considered by an auditor.
2. Referring to the scenario: you are the audit manager considering the figures
extracted from audit working papers and Dolly Ltd&acirc;€™s management
Suggest substantive tests (which may include appropriate analytical
procedures) for each item listed below, stating your reasons, to verify that
there are no material omissions or misstatements in the balances and
iii) trade debtors
3. Referring to the scenario: identify and describe the matters that give rise to
audit risks associated with Dolly Ltd, which may be the basis of your going
concern assessment when forming an opinion on the financial position of
the company as of 31 December 2011.
Overall structure and presentation, referencing, bibliography and word
SCENARIO - based on 2010/11 Semester 2, July 2011 reassessment
exam paper Q1
Dolly Ltd is a company incorporated in the UK on 1 January 2010, and started
trading on the same day. It owns and operates a shop in Central London,
and sells designer ladies&acirc;€™ hosiery such as tights and stockings to boutique
shops in the UK and to passersby. All customers pay by cash or credit card.
Dolly Ltd is open from 12 noon until 6pm, Wednesday to Saturday. Doris
Dean, the shop owner and executive director, lives in the country and she
visits the shop on Wednesdays, term time only. Doris often gives her friends
free &acirc;€˜samples&acirc;€™. She usually leaves notes in the till on who has taken goods
away, but does not always remember to do this.
Helmut Hood, the managing director, runs the shop with 3 part-time
assistants. The directors claim all its products are selling very well: zebra
pattern stockings are sold out immediately after a pop star has worn them in a
television programme recently, and there is a waiting list for them.
Dolly Ltd relied on manual books and accounts in its first year of trading, but
has installed Sage in March 2011. There are some teething problems, and an
IT contractor is still working on them now.
Extract from audit working papers:
Latest figures (unaudited) Audited accounts
6 months to [url removed, login to view] Year ended [url removed, login to view]
Gross sales 102.5 208.0
Stock 10.1 20.2
Trade debtors 0.3 -
Trade creditors 16.8 15.0
Cash and bank 2.0 5.0
Extract from the client company&acirc;€™s management accounts:
Jan &acirc;€“ Mar 11 70.0 49.0
Apr &acirc;€“ Jun 11 50.0 53.5
Jul &acirc;€“ Sep 11 50.0 -
Oct &acirc;€“ Dec 11 80.0 -
Operating profit margin 2011
Jan &acirc;€“ Mar 11 100 80
Apr &acirc;€“ Jun 11 100 85
Jul &acirc;€“ Sep 11 100 -
Oct &acirc;€“ Dec 11 100 -
The following sources may be helpful:
- essential and recommended texts
- relevant FRC, IFAC and professional body websites
- business and financial news relevant to the period
- Your coursework should be in printed hard copy format
- You must use concise business and professional language
- Do not exceed the word limit (2000 words). Include a word count
after the bibliography.
- The coursework must be clearly presented with structured headings,
sections, and tables where appropriate.
- You must relate the specific practical issues arising from the
audit of the company to relevant ISAs, to the audit
process and to articles from the accounting literature.
- You should clearly identify the range of sources you have used for all
tasks and present a fully reference bibliography.
Skills required:Accounting, Audit, Finance, Project Management, Tax