ACCA AA Syllabus D. Audit Evidence - Receivables - Direct Confirmation - Past Papers ^{2 / 18}

Dashing Co manufactures women’s clothing and its year end was 31 July 20X7. You are an audit supervisor of Jaunty & Co and the year-end audit for Dashing Co is due to commence shortly.

The draft financial statements recognise profit before tax of $2·6m and total assets of $18m. You have been given responsibility for auditing receivables, which is a material balance, and as part of the audit approach, a positive receivables circularisation is to be undertaken.

At the planning meeting, the finance director of Dashing Co informed the audit engagement partner that the company was closing one of its smaller production sites and as a result, a number of employees would be made redundant. A redundancy provision of $110,000 is included in the draft financial statements.

Required:
(a) Describe the steps the auditor should perform in undertaking a positive receivables circularisation for Dashing Co. (4 marks)

Balotelli Beach Hotel Co (Balotelli) operates a number of hotels providing accommodation, leisure facilities and restaurants.

You are an audit senior of Mario & Co and are currently conducting the audit of Balotelli for the year ended 31 December 20X4. During the course of the audit a number of events and issues have been brought to your attention:

Non-current assets and depreciation
Balotelli incurred significant capital expenditure during the year updating the leisure facilities at several of the company’s hotels. Depreciation is charged monthly on all assets on a straight line basis (SL) and it is company policy to charge a full month’s depreciation in the month of acquisition and none in the month of disposal.

Trade receivables
Balotelli’s trade receivables have historically been low as most customers are required to pay in advance or at the time of visiting the hotel. However, during the year a number of companies opened corporate accounts which are payable monthly in arrears. As such, the trade receivables balance has risen significantly and is now a material balance.

As trade receivables is a material balance, the audit partner has asked that the audit team carry out a trade receivables circularisation.

Which of the following are benefits of carrying out a trade receivables circularisation?

(1) It provides evidence from an independent external source
(2) It provides sufficient appropriate audit evidence over all relevant balance assertions
(3) It improves audit efficiency as all customers are required to respond
(4) It improves the reliability of audit evidence as the process is under the control of the auditor

A. 1 and 2
B. 1, 2 and 4
C. 2 and 3
D. 1 and 4 only

Balotelli Beach Hotel Co (Balotelli) operates a number of hotels providing accommodation, leisure facilities and restaurants.

You are an audit senior of Mario & Co and are currently conducting the audit of Balotelli for the year ended 31 December 20X4. During the course of the audit a number of events and issues have been brought to your attention:

Non-current assets and depreciation
Balotelli incurred significant capital expenditure during the year updating the leisure facilities at several of the company’s hotels. Depreciation is charged monthly on all assets on a straight line basis (SL) and it is company policy to charge a full month’s depreciation in the month of acquisition and none in the month of disposal.

The results of the trade receivables circularisation carried out by the audit team on balances as at 31 December 20X4 are detailed below. You have been asked to consider the results and determine if additional audit procedures are required.

Which of the following statements in relation to the results of the trade receivables circularisation is TRUE?

A No further audit procedures need to be carried out in relation to the outstanding balances with Willow Co and Laurel Co
B The difference in relation to Cedar Co represents a timing difference and should be agreed to a pre year-end invoice
C The difference in relation to Maple Co represents a timing difference and should be agreed to pre year-end bank statements
D Due to the non-reply, the balance with Oak Co cannot be verified and a different customer balance should be selected and circularised