復(fù)習(xí)模塊學(xué)生自己的供參考audit risk

1、Audit RiskFinance charge(Interest/interest bearing debt 兩年比率比較) The finance charge expensed2013.6.Q1in the statement of profit or loss and other comprehensive income appears very low when compared to the companys level of interest bearing debt and its overdraft.To illustrate, the year-end interest b

2、earing debt and overdraft is $12725 (non-current liabilities $11825+ overdraft $900000 ),which when compared to the finance charge for the year of $155000 implies an overall interest rate on all interest bearing debt of only 1.2%.This seems very low,especially when the preference shares have an inte

3、rest rate of 2%.Further information is needed,such as the dates that new finance leases were taken out, the interest rates applicable to each interest-bearing balance and the annual payment due to preference shareholders.This will help to assess whether the finance charge is at risk of understatemen

4、t.Tax expense（Tax expenses/profit before tax 兩年比率比較 ）2013.6.Q1The effective tax rate based on the projected figures for 2013 is 9.5% (70/735), compared to 25%(300/1197) in 2012.The tax expense for 2013 seems low andit is possible that a proper estimate has not yet been made of tax payable.(Tax expen

5、ses compared to tax payable）The statement of financial position shows a tax payable figure of $50,000 whereas the tax expense is $70,000.This also indicates that the tax figures are not correct and will need to be adjusted.Payroll(Control deficiencies)As internal audit team found control deficiencie

6、s when auditing the processing of overtime payments.2013.6.Q1Additional information is needed on the nature of the deficiencies in order to determine the significance of them,and to plan our approach to the audit of overtime payments.(Significance)The fact that the processing is no longer carried ou

7、t by human resources could indicate that the problems were significant.(Materiality)We also need to know the monetary value of the overtime payments to determine its materiality to the financial statements.(Control risk)The fact that the finance function is now performing the processing will affect

8、our assessment of control risk.On one hand, finance department members shouldbe familiar with the operation of internal controls and understand their importance, which would reduce control risk.As all of the processing is now done by one department there is less segregation of duty,which could lead

9、to higher control risk.New clientA is a new client,2013.6.Q1and therefore our firm lacks cumulative knowledge and experience of the business. This increases our detection risk somewhat,but this will be mitigated by thorough planning, including developing an understanding of the business including th

10、e internal control environment.There may also be risks attached tothe comparative information and opening balancesNew audit clientThe Group is a new client of our firm which may create detection risk as we have no previous experience with the client.2014.6.Q1However, thorough planning procedureswhic

11、h focus on obtaining a detailed knowledge and understanding of the Group and its activitieswill minimise this risk.We need to obtain an understanding of each of the subsidiaries and they are all significant components of the Group,with Ross Co, Lynott Co and Beard Cos assetsrepresenting respectively

12、 20%, 22·3% and 26% of Group assets.There is also risk thatcomparative information and opening balances are not correct.New inventory control systemA new system introduced during the year can create control risk. With any new system,there are risksthat controls may take time to develop or be pr

13、operly understood, and risk of error in relation to inventories is relatively high.2014.6.Q1New directorsDuring the year several new non-executive directors were appointed, as well as a new finance director.2015.9/12.Q1While this may serve to strengthen the corporate governance structure including t

14、he control environment,equally the introduction of newmean inexperience and a control risk,nel couldparticularly if the finance director is lacking in experience.Some of the suggestions and accounting treatments made by the finance director indicate that(文中的一些做賬方法)their knowledge of the applicable f

15、inancial reporting framework is weak, signalling that errors may occur in the preparation of the financial statements.(Additional information) Information on the background and experience ofthe new non-executive directors and the new finance director, for example, their professional qualifications a

16、nd previous employmentor directorships held.Materiality to the Group financial statement(AcquisitionProfits/assets/goodwill)To evaluate the materiality of Zennor Co to the Group, its profit and assets need to be retranslated into $.2013.12.Q1At the stated exchange rate of 4 Dingu = $1,its projected

17、profit for the year is $1 and its projected total assets are $2As profit represents 1% of Group projected profit for the year , and its assets represent 2% of Group total assets.A is therefore material to the Groupand may be considered to be a significant component of it.A significant component is o

18、ne which is identified by the auditor as being of individual financial significance to the group.A is likely to be considered a significant componentdue to its risk profile and the change in group structure occurred in the year.The goodwill arising on the acquisition of A amounts to 1% of Group asse

19、ts and is material.Because the balances above, including goodwill, are based on a foreign currency, they will need to be retranslated at the year end using the closing exchange rateto determine and conclude on materiality as at the year end.Materiality needs to be assessed based on the new, enlarged

20、 group structure. Materiality for the group financial statements as a whole will be determined when establishing the overall group audit strategy. The addition of A to the group during the year is likely to cause materiality to be different from previous years,possibly affecting audit strategy and t

21、he extent of testing in some areas.(DisposalProfits on disposal/Assets and liabilities derecognized on the disposal) The profit made on the disposal of A represents 12·5% of Group profit for the year and the transaction is therefore material to the Group financial statements.Given that the subs

22、idiary was sold for $180 millionand that a profit on disposal of $25 million was recognised,the Groups financial statements must have derecognised net assets of $155 million on the disposal.This amounts to 6·2% of the Groups assets and is material.Acquisition of overseas subsidiaries2013.12.Q1(

23、Retranslation of As financial statements)According to IAS 21 The Effects of Changes in Foreign Exchange Rates, the assets and liabilities of A should be retranslated using the closing exchange rate.Its income and expenses should be retranslated at the exchange rates at the dates of the transactions.

24、The risk is that incorrect exchange rates are used for the retranslations.This could result in over/understatement ofthe assets, liabilities, income and expenses that are consolidated, including goodwill.It would also mean that the exchange gains and losses arising on retranslation and to be include

25、d in Group other comprehensive income are incorrectly determined.(Measurement and recognition and classification of exchange gains and losses) The calculation of exchange gains and losses can be complex,and there is a risk that it is not calculated correctly, or that some elements are omitted, for e

26、xample,the exchange gain or loss on goodwill may be missed out of the calculation.IAS 21 states that exchange gains and losses arising as a result of the restranslation of the subsidiarys balances are recognised in other comprehensive income.The risk is incorrect classification, for example,the gain

27、 or loss could be recognised incorrectly as part of profit for the year2014.12.Q2(a)(Initial measurement of goodwill)The goodwill should be recognised as an intangible asset and measured according to IAS 38 Intangible Assets and IFRS 3 Business Combinations.-Cost of investmentThe purchase considerat

28、ion(cost of investment) should reflect the fair value of total consideration paid and payable, and there is a risk that the amount shown in the calculation is not complete, for example, if any deferred or contingent consideration has not been included.-Non-controlling interestThe non-controlling int

29、erest has been measured at fair value. This is permitted by IFRS 3,and the decision to measure at fair value can be made on an investment by investment basis. The important issue is the basis for measurement of fair value. If Co is a listed company,then the market value of its shares at the date of

30、acquisition can be used and this is a reliable measurement. If Co is not listed,then management should have used estimation techniques according to the fair value hierarchy of inputscontained in IFRS 13 Fair Value Measurement.This would introduce subjectivityinto the measurement of non-controlling i

31、nterest and goodwill and the method of determining fair value must be clearly understood by the auditor.-Fair value of net assets at the date of acquisition For such a significant acquisitionsome form of due diligence investigation should have been performed, and one of the objectives of this would

32、be to determine the existence of assets and liabilities,even those not recognised in Teapot Cos individual financial statements. the assets and liabilities of Co must have been identified and measured at fair value at the date of acquisition.Risks of material misstatement arisebecause the various co

33、mponents of goodwill each have specific risks attached, for example: Not all assets and liabilities may have been identified,for example, contingent liabilities and contingent assets may be omitted Fair value is subjective and based on assumptions which may not be valid. which would lead to over or

34、understatement of goodwill andincomplete recording of assets and liabilities in the consolidated financial statements.-Fair value adjustmentThe fair value adjustment of $300,000 made in relation to Cos propertyis not material to the Group accounts, representing less than 1% of total assets.However,

35、the auditor should confirm thatadditional depreciation is being charged at Group level in respect of the fair value uplift. Though the value of the depreciation would not be material to the consolidated financial statements,for completeness and accuracy the adjustment should be made.The auditor shou

36、ld also considerif any further adjustments need to be made to Cos net assets to ensure that Group accounting policies have been applied. IFRS 3 requires consistency in accounting policies across Group members, so if the necessary adjustments have not been made,the assets and liabilities will be over

37、 or understated on consolidation.(Subsequent measurement of goodwillimpairment)According to IFRS 3 Business Combinations and IAS 36 Impairment of assets, goodwill should be subject to an impairment review on an annual basis, regardless of whether indicators of potential impairment exist.The goodwill

38、 in relation to Teapot Cois recognised at the same amount at the year end as it was at acquisition,indicating that no impairment has been recognised.It could be that management has performed an impairment review and has concluded that there is no impairment, or that no impairment review has been per

39、formed at all.However, Group profit has declined by 30·3% over the year, which in itself is an indicator of potential impairment of the Groups assets, so it is unlikely that no impairment existsunless the fall in revenue relates to parts of the Groups activities which are unrelated to Teapot Co

40、.The risk is that a review has not taken place,and so goodwill is overstated and Group operating expenses understated if impairment losses have not been recognized .(Acquisition incurred in the previous years but no goodwill recognized in SOFP)The draft consolidated statement of financial position d

41、oes not recognise goodwill, which is unusual for a Group with three subsidiaries.It may be that no goodwill arose on the acquisitions,or that the goodwill has been fully written off by impairment.However, there is a risk of understatement of intangible assets at the Group level.Further information i

42、s required on why goodwill is not recognised,and reviews of historical financial statements should provide details on this matter. The original acquisition documents should also be sought,to allow an assessment as to whether any goodwill actually arose on acquisition.(Consolidation of income and exp

43、enses)A was acquired on 1 February 2013and its income and expenses should have been consolidated from that date.There is a risk thatthe full years income and expenses have been consolidated, leading to a risk of overstated Group profit.(Disclosure)Extensive disclosures are required by IFRS 3to be in

44、cluded in the notes to the Group financial statements, for example, to include the acquisition date,reason for the acquisitionand a description of the factors which make up the goodwill acquired. The risk is that disclosures are incomplete or not understandable.(Evidence) Review of board minutes for

45、 discussions relating to the acquisition, and for the relevant minute of board approval.(Cost of investment) Agreement of the purchase considerationto the legal documentation pertaining to the acquisition, and a review of the documents to ensure that the figures included in the goodwill calculation

46、are complete. Agreement of the $75 million to the bank statement and cash bookof the acquiring company (presumably the parent company of the Group).(Non-controlling interest) A review of the purchase documentationand a register of significant shareholders of Teapot Co to confirm the 20% non-controll

47、ing interest. If Cos shares are not listed,a discussion with managementas to how the fair value of the non-controlling interest has been determined and evaluation of the appropriateness of the method used. If Cos shares are listed,confirmation that the fair value of the non-controlling interest has

48、been calculated based on an externally available share price at the date of acquisition.(Fair value of net assets at the date of acquisition) A copy of any due diligence report relevant to the acquisition,reviewed for confirmation of acquired assets and liabilities and their fair values. An evaluati

49、on of the methods used to determine the fair value of acquired assets, including the property, and liabilitiesto confirm compliance with IFRS 3 and IFRS 13.(Fair value adjustment) Review of depreciation calculations, and recalculation,to confirm that additional depreciation is being charged on the f

50、air value uplift. A review of the calculation of net assets acquiredto confirm that Group accounting policies have been applied.(Impairment of goodwill) Discussion with management regarding the potential impairment of Group assets and confirmation as to whether an impairment review has been performe

51、d. A copy of any impairment review performed by management,with scrutiny of the assumptions used, and re-performance of calculations.Disposals of subsidiaries(Derecognition of assets and liabilities)On the disposal of Aall of its assets and liabilitieswhich had been recognised in the Group financial

52、 statements should have been derecognised at their carrying value, including any goodwill in respect of the company.2013.12.Q1There is therefore a risknot all assets, liabilities and goodwill have been derecognised leading to overstatement of those balances andan incorrect profit on disposal being c

53、alculated and included in Group profit for the year.(Profit consolidated prior to disposal) There is a risk thatAs income for the year has been incorrectly consolidated.It should have been included in Group profit up to the date that control passed and any profit included after that point wouldmean

54、overstatement of Group profit for the year.(Calculation of profit on disposal)There is a risk that the profit on disposal has not been accurately calculated,e.g. that the proceeds received have not been measured at fair value as required by IFRS 10 Consolidated Financial Statements,or that elements

55、of the calculation are missing.(Classification of profit on disposal)The profit on disposal should becorrectly disclosed as part of profit for the yearin the Group statement of profit or loss and other comprehensive income (not in other comprehensive income)on a separate line.(Disclosure of profit on disposal)IAS 1 Presentation of Financial Statements requires separate disclosure on the face of the financial statements of material itemsto enhance the understanding of performance during the year.The profit of $25 million is material, so separate disclosure is necessary.