AA Mock 1

AUDIT AND ASSURANCE MOCK-1
ACCA
Applied Skills
Audit and Assurance
Mock-1
Date: 11. November. 2023
Institution: LCBS
Facilitator: Md Mazedur Rahman ACCA
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Section B – ALL THREE questions are compulsory and MUST be attempted
Question 16
Falcon Co is a manufacturer of footballs and is a new audit client for your firm. You
are an audit supervisor of MJ & Co and are currently preparing for the forthcoming
interim and final audit for the year ending 30 June 20X5.
You are required to document and assess the sales system, recommend control
improvements to deal with a specific fraud issue and undertake substantive testing
of revenue.
Sales ordering, goods dispatched and invoicing

Falcon Co sells footballs to a range of large and small sports equipment retailers in
several countries. Sales are made through a network of sales staff employed by
Falcon Co, but new customer leads are generated through a third-party company.
Sales staff are responsible for assessing new customers' creditworthiness and
proposing a credit limit which is then authorised by the sales director. The sales staff
have monthly sales targets and are able to use their discretion in granting sales
discounts up to a maximum of 10%. They then record any discount granted in the
customer master data file. The sales staff visit customer sites personally and orders
are completed using a two-part pre-printed order form. One copy is left with the
customer and the other copy is retained by the salesperson. The sales order number
is based on the salesperson's own identification (ID) number.
The company markets itself on being able to dispatch all orders within three working
days. Once the order is taken, the salesperson emails the finance department and
warehouse dispatch team with the customer ID and the sales order details and from
this a pick list is generated. Sequentially numbered goods dispatched notes are
completed and filed in the warehouse. Sequentially numbered invoices are generated
using the pick lists for quantities and the customer master data file for prices.
Standard credit terms for customers are 30 days and on a monthly basis sales
invoices which are over 90 days outstanding are notified to the relevant salesperson
to chase payment directly with the customer.
Payroll fraud
The finance director, Montse Mirabelle, has informed you that a significant fraud took
place during the year in the payroll department. A number of fictitious employees
were set up on the payroll and wages were paid into one bank account. This bank
account belonged to two supervisors, who were married, and were employed by
Falcon Co. One had sole responsibility for setting up new joiners in the payroll system
and the other processed and authorized bank transfer requests for wages and
supplier payments. These employees no longer work for the company and Montse
has asked the audit firm for recommendations on how to improve controls in this
area to prevent this type of fraud occurring again. Falcon Co operates a human
resources department.
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Required
(a) Describe TWO methods for documenting the sales system, and for each explain
ONE advantage and ONE disadvantage of using this method. (6 marks)
(b) Identify and explain SEVEN deficiencies in the sales system of Falcon Co and
provide a recommendation to address each of these deficiencies.
Note. Prepare your answer using two columns headed Control deficiency and
Control recommendation respectively.
Note. Assume it is 1 July 20X5 (14 marks)
(c) In relation to the payroll fraud, identify and explain THREE controls Falcon Co
should implement to reduce the risk of this type of fraud occurring again and, for
each control, describe how it would mitigate the risk.
(6 marks)
(d) Describe substantive procedures the auditor should perform to obtain sufficient
and appropriate audit evidence in relation to Falcon Co's revenue. (4 marks)
(Total = 30 marks)
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Question 17
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Question 18
Yap Co manufactures chemical compounds using a continuous production process.

Its year end was 30 April 20X5 and the draft profit before tax is $13.6 million. You
are the audit supervisor and the year-end audit is due to commence shortly. The
following matters have been brought to your attention:
(i) Revaluation of property, plant and equipment (PPE)

At the beginning of the year, management undertook an extensive review of Yap Co's
non-current asset valuations and as a result decided to update the carrying value of
all PPE. The finance director, Peter Dullman, contacted his brother, Martin, who is a
valuer and requested that Martin's firm undertake the valuation, which took place in
July 20X4. (5 marks)
(ii) Inventory count

Yap Co is forecasting a year-end inventory balance of $9.3m. The company
undertakes continuous production and full year-end inventory counts will be carried
out on 30 April 20X5. Yap Co's raw materials and finished goods inventory are stored
in its six warehouses which are located across the country. The company has one
factory site and it is expected that there will be no significant work in progress held
at the year end. Each inventory count will be supervised by a member of Yap Co's
internal audit department. There will be no movements of goods in and out of the
warehouses during the counts. The auditors will only attend some of the counts.
The largest warehouse is located at the factory site and around 10% of this
warehouse space is rented out to a third-party company, which stores its inventory
of cleaning products there. The finance director has explained that the third-party
inventory is located in one specific area of the warehouse. (6 marks)
(iii) Issue of share capital

The company is looking to expand its operations by securing an additional factory
site in January 20X6. In order to raise sufficient capital to fund the factory purchase,
Yap Co issued ordinary shares at a premium in May 20X5, raising a sum of $4.3m.
(4 marks)
Required
(a) Describe substantive procedures you should perform to obtain sufficient,
appropriate audit evidence in relation to the above three matters.
Note. The mark allocation is shown against each of the three matters above.
Note. Assume it is 1 July 20X5
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During the audit of Yap Co's inventory, the audit team identified five product lines
which were very slow moving and concluded that the net realisable value of these
goods was below cost. A significant write down of inventory was required in order to
comply with IAS® 2 Inventories. The audit engagement partner has determined that
inventory is now appropriately valued and that this issue should be communicated as
a key audit matter (KAM) in accordance with ISA 701Communicating Key Audit
Matters in the Independent Auditor's Report.
(i) Describe the factors which the audit engagement partner would have
considered in determining that this issue is a KAM, and
(ii) Describe the content of the KAM section of the auditor's report for
Spinach Co. (5 marks)
(Total = 20 marks)
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AUDIT AND ASSURANCE MOCK-1

Section B – ALL THREE questions are compulsory and MUST be attempted

Sales ordering, goods dispatched and invoicing

Yap Co manufactures chemical compounds using a continuous production process.

(i) Revaluation of property, plant and equipment (PPE)

(ii) Inventory count

(iii) Issue of share capital

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