[kerri]

Hello are you guys sitting the March 16 uk tax paper?

[kerri]

Hello
Yes you will be examined in the finance act 2015 in June.

[kerri]

Yes. We need to start asap if you guys are serious.

[kerri]

Have you got WhatsApp

[kerri]

No you didn’t reply.

[kerri]

Thanks so much for your patience. Now I finally understood it 🙂

[kerri]

Ok I think I now understand

So if inherent risk i.e diversification to new markets therefore high inherent risk
Control risk is high – i.e new systems in place likely to cause a failure if these new systems have not been tested properly.
Detection risk – The auditor will set detection risk low because it believes that no material errors are present, but in reality it is, so more testing is involved in order to lower the level of materiality.

[kerri]

If inherent risk and control risk is high e.g new inventory systems leads to a higher control risk. Then detection risk should be low ? I actually thought detection risk will be high because high risk of materiality due to new systems.
Im confused. This is not in the book but is it examined in p7.

[kerri]

If inherent risk is high that means the control risk is high as controls are not in place to prevent misstatement. And detection risk is high because higher risk that auditor cannot detect misstatement.

Sorry for being a pest.
Thanks again

[kerri]

Thanks Mike. The meaning of audit risks and risk of material misstatement seems the same. And even when I’m going through the solutions they are the same both you have to identify standard. State risks.?

[kerri]

and for audit risks can you talk about business, detection and inherent risks?

[kerri]

i think the audit risks are the share options could be overstated/understated. Such as the IFRS 2 may not have been applied correctly, i.e grant date may not have been used, some employees may not qualify for share options. Yet again the auditor will have to obtain sufficent appropriate evidence in relation to this, such as inspect the agreement of employment for employees.

if it is split for 3 years – should DR expense and CR share options for each year – it may give you comparisons from lasy years SOFP and this year. If so the liability should have increased. If it is not then they could be a risk that the share options have not been included.

[kerri]

Continuing…

Property revaluation
Gain $800, below materiality $900. would the materiality not based on the total assets rather than the $900.? in answers they have compared the gain $800 to the materiality level $900. 800/900 = 88.8%, which is material. whereas I would compare it with the total assets (800/118420) = 0.67% which looks to be immaterial.. I’m confused here..

[kerri]

continue from the post above:

Warranty provision – if the sales have increased then the warranty provision may be significantly higher due to guarantees etc from customers. the CEO estimates the warranty provision, hence he will try to make the SOFP look better. therefore the warranty provision will be understated – is this correct?

it also says in solutions: ” auditors must ensure that the provision is calculated consistency in pervious years” – would this be a matter of the auditor testing its opening balances and make sure the provision figure is applied correctly.

[kerri]

“No, I don’t think so! We have found the error so inappropriate opinion isn’t involved – we’ll simply ask (require?) the directors to recalculate goodwill and restate the value of the non-current liability”

you mentioned the above. it doesnt state in this case whether error was found or not, it only mentions about the amortised cost.

the loan figure $20 is already included in the net assets I thought so why recalculate goodweill again? im confused

[kerri]

So how will i know the benchmark? is it based on own assumptions?

Its the bpp book for the exam kit. that i use.

I need time to digest what you have mentioned as above, certaintly materiality is quite a difficult section in this syallabus i think.

[kerri]

Hi Mike

The materiality benchmark is on the Kaplan P7 Study text. It is under chapter 10 transnational audit. – Materiality. dont have the page number for you just now.

There must be a benchmark in order for us to determine how significant it is.
1. Magpie (ii) Evaluate risks of material misstatement. Is this risk assessment?
2. In terms of business valuations – why is there an audit risk?
3. Loan – can you mention that there is an audit risk if the loan has not been discounted over the years and finace costs have not been discounted and allocated to the P/L?
4. Gov grants – of $35m, you cannot use this grant for anything else i.e in case packaging, you will have to spend it on solar panels, which amounted $25m, the $m has been overstated to deferred income, does that mean that starling does nto qualify for Gov grants?

In Bpp book the answers mentions ” prior period not relevant” – deferred income in prior period was overstated by $10,000. this is 0.014% of Crow’s forecast revenue ( 100,000/69000,000) it is clearly immaterial and not relevant to audit planning. I dont understand where they got the $10,000 from? and is it in releavnt because the grant was received on March 2012 whereas we are preparing for the y/e 31.7.2012

thanks

[kerri]

Yes I know sorry about that it just came to my mind 🙂

thanks for the explanantion. It indeed makes sense. E.g you could open up a bar where there is alot of cash sales, and perhaps open up a consultancy company and deposit some of the undeclared cash in this legitimate business.

[kerri]

Money laundering process has 3 stages.
Placing : getting money into the system in the first place. This could be by making bank deposits, making investment or through front business which is a legitimate business that is used to launder money. Eg betting shop which receives high level of cash could be used to deposit stolen cash.

I don’t know if my previous msg was correct about placing?

[kerri]

So even though they did all checks there is still a possibility that the auditor may not find anything suspicious.

See ‘placing’ does that mean depositing dirty cash into a llegitimate company account in order to make the money clean and foreseeable.

Thanks

[kerri]

The example above is that not familiarity threat?
I had 3 points and that’s including the reputation point.

[kerri]

It is only 5 marks for that question. I think i will be writing anything I can possibly think off in the exam. Can you give me an example of intimidation threat? I think im getting confused with this meaning.

Thanks Mike.

[kerri]

Sufficent appropriate evidence.
So let’s say the audit client restricts giving the audit firm records of board meetings but they were already been appointed and are existing clients. What will the audit firm then do?

Thanks

[kerri]

Well you helped me a lot in terms of helping me to understand the context.

Overall very good tutior 🙂

I am self studying this year for 2 exams one is auditing. Mike you will see me posting many question’s for u to answer lol. What’s the best approach for p7? Pass papers? Rather than focus on book?

[kerri]

Lol your absolutely right. I still can’t find a buddy..
Anybody interested give me there whatsapp..

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