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Audit & Assurance

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’s management

accounts.

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

transactions of:

i) turnover

ii) stock

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

count.

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’ 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 ‘samples’. 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]

£’000 £’000

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’s management accounts:

Turnover 2011

Budget Actual

£’000 £’000

Jan – Mar 11 70.0 49.0

Apr – Jun 11 50.0 53.5

Jul – Sep 11 50.0 -

Oct – Dec 11 80.0 -

Operating profit margin 2011

Budget Actual

% %

Jan – Mar 11 100 80

Apr – Jun 11 100 85

Jul – Sep 11 100 -

Oct – 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

ASSESSMENT CRITERIA

- 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

Skills: Accounting, Finance

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