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sorry kim but i have difficulties understanding your answer.
my question was whether an audit firm audits a audit client and that audit client uses a service organization e.g payroll, then audit firm can perform test of control, substantive test, and request type 1 and type 2 report ?
for number 1, that means if i obtain type 2 report from service organization, and have performed test of control, i don’t have to perform substantive procedures ?
that means if i were to provide audit procedures on service organization
if i request for type 2 report from a service organization, i can’t perform substantive procedures on that service organization ?
in the new audit report structure for the listed company, KAM replaces OMP para isn’t ?
or is it like depending on circumstances, KAM may or may not replace OMP in listed company
Then, how about these ?
3. obtain loan document to confirm the amount of 500,000 shown in the cashflow forecasst and discuss with management how they will pay the remaining amount if the fair value of investment is lesser than 500,000 (e.g 350,000 )
Hi Kim,
For subsidiary 1, the reasoon i said it’s adverse becuase the company has material uncertainty on going concern therefore shouldn’t it be adverse opinion ?
For subsidiary 2, on intra group transaction, i know they must be eliminated but management have not eliminated and reluctant to eliminate because they intend to overstate on assets, liability including any unrealized profit overstating profit. THerefore i mentioned it’s qualfied opinion.
The reason i issued opinion was becuase management was reluctant to adjust it.
THen, if the consolidated FS is not the sum of individual opinion of the subsidiaries, then when the question asks for the impact on Group audit, we just mention individual impact and aggregated impact and that’s all ?
3. but for the sake of AAA (P7) paper, is it important to classify and understand all of these 5 terms ?
may i understand reasonable and high level of assurance is like external audit
and
moderate, limited and negative assurance is for PFI ?
4. in addition, may i know what is the difference between no assurance and negative assurance ? because no assuance is given for forensic accounting but im not sure whether it’s considered as negative assurance
for number 2, may i know what you mean by “doesn’t validate what is a significant assumption that the lender will agree to this” ?
The reason i take FD’s expectations as a board approval is because FD won’t expect without board approval for loan ?may i ask if the below answers are acceptable answers for the same question ? (S/D 2016)
3. Notes of discussion whether receipt from customers & payment to suppliers include the inflation rate and if not on what basis they were not included
4. Results of external sources (e.g bloomberg, yahoo finance) to confirm the general inflation rate of 2% is reasonable and appropriate
5. copy of correspondence between the Rope Co and bankers to confirm the on-going negotiation of debt, amount(i.e 1.5m) and feasible terms and conditions
6. Notes of discussion why 0.5m was included when the fair value was 0.35m and how they will finance the loan amount if the fair value is lesser than .5m
7. Copy of loan document to confirm the amount, repayment date, terms and conditions of loanHi then how about the below evidence for the same question (S/D16)
1. like reviewing past sales report for the past (e.g 5 years ) to confirm whether the increasing trend of sales forecast is reasonable and apropriate
and
2. in the third notes, it says finance director expects to take out a matching facility …..etc, Then can i write as “Copy of board minutes to confirm the approval of taking out matching facility to pay off existing debt” ? because finance director expect means at least there was an approval by the board right ?
moreover if in PFI question, if it says a company has received a loan, then can i say in the audit procedure as
“review the copy of bank statement to confirm the $XX loan was received “
in the D18 Q2(b), in the notes, it says the finance director expects to take out a matching facility with the current lender to pay off the existing debt. Then can i say for the audit procedures
” Review the copy of board minutes to confirm the approval of taking out matching facility in order to pay off existing debt ” ???
for planning it won’t be that long but i believe should have complete plan therefore during the writing time, i simply focus on writing with better legible handwriting and do not worry about the timing issues since i have completed the plan and just have to stick to the time plan
You have mentioned relevant. That means we must use the correct base such as revnue, total assets and profit before tax ?
So for example if impairment, we can either use total assets amount and profit before tax amount correct ?
3. sorry but what you mean by dictate ? you mean like what is the standard about ?
In addition, no need to quote the numbers then when i reference it, do i have to give a full name or just a word would suffice it like instead of “in accordance with accounting standard of impairment of assets”, just like “in accordance with imapirment”
Because, i’m afraid if i have to give a full reference of the name since i do not provide the the number.
1. 1 mark mean, for each comment and audit evidence, 1 mark individually so total 2marks ? or 0.5 individually so total 1 mark ?
2. then for the audit evidence, will i get 1 mark for writing either of it ? (shown below)
im not sure whether i have to write bank statement & cash book simultaneously in the answer sheet and i was afraid if i get only 0.5 mark if i write only bank statement
” copy of bank statement and cash book to agree the amount shown in bank statement / cash book against the $XXX paid to the other party
“copy of bank statement to agree the amount shown in the bank statement agains t the $XXX paid to the other party”
that’s for section B question, how about Section A question ? is it the same where we calculate just one relevant parameter ?
so in question 3, what you mean is that in listed entity, there could be both EOMP and KAM for covering different matters depending on the auditors’ judgement ?
and also, if they both appear in auditor’s report, which one would appear first ?
so actually, instead of trying to calculate 2 or 3 materiality percentages, isn’t it better off to calculate just one straightforward materiality percentage and move on to other parts or questions ?
But frankly i do not understand why a question try to calculate multiple percentages in June 2009, Robster Co, part (a) (ii).
In that question, they only mention financial asset but they have calculated all total assets, profit before taxa nd revenue.
It’s really confusing to us how many materiality percentages to calculate
Hi Kim Smith, May i ask a question ?
in this example you have mentioned
“if revenue is materially overstated due to a cut-off error and the other side of the entry means that trade receivables are overstated then materiality can be validly assessed against revenue, PBT and total assets”let’s assume revenue is materially misstated and therefore in the answer, i have only calculated revenue materiality portion and said that it’s material to profit or loss statement
and when we assume total mark is 1 mark for identification and calculation of materiality, i can only score 0.3 mark ? since we must have calculated all revenue, PBT and total assets ?
or do we get one full mark as long as we calculate at least one relevant materiality amount & explained about it ?
hi i seem to have a problem uploading a question , so if possible i’ll upload the question here. sorry tutor
Hi tutor,
I ve written down some parts from the text.
It’s considered pervasive if
1. Effectd are not confined to specific elements, accountd or items of financial statements (fs); or2. If so confined could present or represent a substantial proportion of fs; or
3. Fundamental to users’ understanding of fs in relation to disclosures.
So when we see in no. 2, how do we determine that substantial proportion ?
For materiality, we can determine using percentage calculation but im not sure how we determine that ‘ substantial proportion’I did understand no 1 and 3 but number 2 is quite ambiguous
Thank you