四川的同学来看看吧！HKICPA审计笔记试卷（Feb2004A）的答案分享

　　四川的同学来看看吧！HKICPA审计笔记试卷（Feb2004A）的答案分享！
 

　　SECTION A: CASE QUESTIONS
 

　　1a.1 In accordance with SAS 240 Quality Control for Audit Work, the firm should consider its independence and ability to serve the client properly, and the integrity of the client's management before the firm makes the decision to accept an engagement.

　　The firm’s clients mainly consist of small to medium size manufacturing, trading and service companies.  The firm does not have extensive experience in auditing financial statements of companies in the construction industry.
 

　　ABC also has business in the PRC.  While the firm’s existing clients may have operations in the PRC and the firm has experience in auditing these companies, the firm does not have extensive experience in auditing the PRC construction industry.
 

　　If this engagement were to be accepted, more experienced auditors would need to be assigned to the engagement team to handle the audit engagement for an industry which is relatively new to the firm.
 

　　Members of the engagement team should ensure that they have sufficient knowledge of the construction industry to enable them to identify and understand the events, transactions and practices which, in the auditors’ judgement, may have a significant impact on the financial statements, the audit or the auditors’ report.
 

　　The auditors may obtain knowledge about ABC’s business through a number of ways, for example, holding discussions with various knowledgeable parties such as ABC’s management, other auditors and other knowledgeable people outside ABC, reading publications related to the construction industry, and reviewing legislation and regulations which may significantly affect ABC.
 

　　Professional ethics statement 1.203A Independence for Assurance Engagements is applicable to audits of financial statements for accounting periods beginning on or after 1 January 2004.  Early adoption of Statement 1.203A by the firm to the audit of ABC’s financial statements for the year ended 31 December 2003 should be recommended.
 

　　In accordance with Statement 1.203A, the auditors have an obligation to identify and evaluate circumstances and relationships that create threats to independence and to take appropriate action to eliminate these threats or to reduce them to an acceptable level by the application of safeguards in cases when the threats are not clearly insignificant.
 

　　In general, a self-Interest threat may arise when a firm or a member of the assurance team could benefit from a financial interest in or other self-interest conflict with, an assurance client.  For example, a self-interest threat exists when a firm has undue dependence on total fees from an assurance client.
 

　　The fact that the audit fee from the audit of ABC’s financial statements for the year ended 31 December is estimated to be about 10% of the firm’s gross income for the year 2004 may cause a self-interest threat to the firm’s independence.
 

　　In general, a familiarity threat occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees, a firm or a member of the assurance team becomes too sympathetic to the client's interests.
 

　　The facts that the Financial Director of ABC, Mr. Sham, was once a senior manager of the firm, that a partner of the firm, Stanley, is a very good friend of Mr. Sham, and that Stanley’s son is employed by ABC, may cause familiarity threats to the firm’s independence.
 

　　In general, a self-review threat may occur when any judgment of a previous non-assurance engagement needs to be re-evaluated in reaching conclusions on the assurance engagement.
 

　　The fact that a partner of the firm frequently gives advice to Mr. Sham, including advice on financial reporting matters, may result in a self-review threat to the firm’s independence.
 

　　An intimidation threat occurs when a member of the assurance team may be deterred from acting objectively, exercising professional scepticism because of threats, actual or perceived, from the directors, officers or employees of the assurance client.
 

　　The fact that ABC has a record of replacing auditors when its management disagree with the auditors on the application of accounting principles may cause an intimidation threat to the firm’s independence.
 

　　In general, a self-Interest threat may arise when a firm or a member of the assurance team could benefit from a financial interest in or other self-interest conflict with, an assurance client.  For example, a self-interest threat exists when a firm has undue dependence on total fees from an assurance client.
 

　　The fact that the audit fee from the audit of ABC’s financial statements for the year ended 31 December is estimated to be about 10% of the firm’s gross income for the year 2004 may cause a self-interest threat to the firm’s independence.
 

　　In general, a familiarity threat occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees, a firm or a member of the assurance team becomes too sympathetic to the client's interests.
 

　　The facts that the Financial Director of ABC, Mr. Sham, was once a senior manager of the firm, that a partner of the firm, Stanley, is a very good friend of Mr. Sham, and that Stanley’s son is employed by ABC, may cause familiarity threats to the firm’s independence.
 

　　In general, a self-review threat may occur when any judgment of a previous non-assurance engagement needs to be re-evaluated in reaching conclusions on the assurance engagement.
 

　　The fact that a partner of the firm frequently gives advice to Mr. Sham, including advice on financial reporting matters, may result in a self-review threat to the firm’s independence.
 

　　An intimidation threat occurs when a member of the assurance team may be deterred from acting objectively, exercising professional scepticism because of threats, actual or perceived, from the directors, officers or employees of the assurance client.
 

　　The fact that ABC has a record of replacing auditors when its management disagree with the auditors on the application of accounting principles may cause an intimidation threat to the firm’s independence.
 

　　Evaluation of the threats and safeguards to eliminate/reduce the threats
 

　　The threats to the firm’s independence identified above are not clearly insignificant. However, the threats are not significant enough to warrant the refusal to accept the assurance engagement as the only possible action.
 

　　If the firm decides to accept the engagement to audit ABC’s financial statements for the year ended 31 December 2003, appropriate safeguards should be applied to eliminate or reduce the threats to an acceptable level.
 

　　The firm may adopt the following safeguards to eliminate or reduce the threats to its independence:
 

　　Stanley should not be a member of the engagement team for ABC’s audit and should not be involved in any internal consultation regarding ABC’s audit;
 

　　Additional professional staff not associated with the engagement team should be involved to review the work done and judgements made; and
 

　　The independence issues, particularly the intimidation threats, should be discussed with ABC’s audit committee or others who are charged with the governance of ABC.
 

　　(Other appropriate safeguards not listed above.)
 

　　1d.1 General approach in assessing inherent risk at the financial statement level

　　To assess inherent risk at the financial statement level in accordance with SAS 300, we should evaluate numerous factors, including but not limited to the following items:  a) the integrity of ABC’s management; b) the experience and knowledge of ABC’s management; c) any changes in management during the year under review; d) any unusual pressures on ABC’s management;  e) the nature of ABC's business; and f) factors affecting the industry in which ABC operates.
 

　　The following facts indicate a lack of integrity of ABC’s management which therefore increase the inherent risk at the financial statement level:  
        a) the company has dumped toxic waste on one of its sites that may result in very heavy penalties being imposed by the local authorities;

　　b) the management does not show respect to the existing auditors’ view on disclosure of the possible penalties in the financial statements and intends to replace the existing auditors for this reason; and

　　c) the management has refused to pay the audit fee for the 2002 audit for theapparent invalid allegation that the existing auditors have breached their duties of confidentiality.
 

　　Material misstatements were found in ABC’s draft financial statements for the year ended 31 December 2002.  It indicates that ABC’s management may lack the knowledge of proper financial reporting for a construction contracting company.
 

　　The fact that an unqualified audit report is of vital importance to ABC to obtain continuing bank facilities indicates an unusual level of pressure on ABC’s management and therefore a higher inherent risk at the financial statement level.
 

　　The nature of the business is more complex when compared with trading or manufacturing companies.  Extensive sub-contracting of system installation work to outside parties may be involved.  Expert knowledge may be required to assess the work performed by the company or its sub-contractors.  The company also operates in Hong Kong and the PRC.  The complex nature of ABC’s business results in a higher inherent risk at the financial statement level.
 

　　The nature of the system installation industry also results in a higher inherent risk. For example, alleged corruptions in contract tendering and substantial claims for defective works are not uncommon in the industry.
 

　　Based on the above analysis, the inherent risk at the financial statement level for the audit of ABC’s financial statements for the year ended 31 December 2003 is assessed as high.
 

　　To assess inherent risk at the assertion level in accordance with SAS 300, numerous factors should be evaluated, including but not limited to the following items:  
        a) whether the account is likely to be susceptible to misstatement, for example,accounts which involve a high degree of estimation;

　　b) the complexity of underlying transactions and other events which might require using the work of an expert;

　　c) the degree of judgment involved in determining account balances;
        d) susceptibility of assets to loss or misappropriation, for example, assets which are highly desirable and movable such as cash;

　　e) the completion of unusual and complex transactions, particularly at or near year end; and

　　f) transactions not subjected to ordinary processing.
 

　　In accordance with SSAP 23, contract revenue should be recognised using the percentage of completion method where the outcome of the contract can be reliably measured.  Contract revenue for other contracts should be recognised only to the extent of those contract costs that it is probable will be recoverable.
 

　　A high degree of estimation is required in arriving at the amount of contract revenue for the year.  For example, judgement is involved in determining whether the outcome of a particular contract can be reliably predicated.  It is probably inappropriate for ABC to treat the outcome of all contracts that have been more than 15% completed as reliably measurable.
 

　　To determine the percentage of completion of a particular contract may also be complex and may need to involve the work of an expert.
 

　　Contract revenue dropped by HK$ 12 million, or 19%, as compared with last year’s revenue may further increase the inherent risk at the assertion level.
 

　　Based on the above analysis, the inherent risk of ABC’s contract revenue for the year ended 31 December 2003 is assessed as high.
 

　　Contract revenue recognised for the year represents revenue from services for installation of electrical and mechanical engineering systems actually rendered during the year under review.
 

　　Examples of substantive procedures

　　Inspect relevant records of installation services rendered during the year for the recognition of revenue.
 

　　Examine the supporting documents, including installation contracts, progress reports from the engineering department and/or sub-contractors, consulting engineers’ certificates, and evidence of cash received from customers, etc.
 

　　Review other operation information of ABC critically and assess the reasonableness of the relative amount of contract revenue and related expenses recognized during the year.
 

　　(Other RELEVANT substantive procedures not listed above.)
 

　　2b.2 Contract revenue – Completeness 
        Specific audit objective

　　All services for installation of electrical and mechanical engineering systems rendered during the year under review are properly recognised as revenue as and when appropriate.
 

　　Examples of substantive procedures

　　Inspect records such as installation contracts and progress reports and determine the quantum of installation services provided during the year.  Examine the numeric or date sequence of these document and the corresponding records for the recognition of the transactions as revenue during the year.
 

　　Perform analytical procedures to assess the reasonableness of the relative amount of contract revenue and related expenses recognized during the year.
 

　　Inspect records for material revenue transactions recognized subsequent to the year end to consider whether they should be recognized in the current year.
 

　　(Other RELEVANT substantive procedures not listed above.)
 

　　Revenue from installation contracts are recognized only when appropriate accounting recognition criteria set out in SSAP 23 are met and the amounts are determined in accordance to the measurement rules set out in SSAP 23 and are accurately computed.
 

　　Examples of substantive procedures

　　Review the contract revenue recognition policy adopted by ABC to consider whether the policy complies with the requirements of SSAP 23.
 

　　Examine the status of contracts using the stage of completion method for recognizing contract revenue to determine whether they satisfied the criteria for using the method.
 

　　Re-perform the computations of contract revenue recognized for the year.
 

　　Perform analytical procedures on related expenses or other operation information to assess the reasonableness of the measurement of contract revenue recognized during the year.
 

　　(Other RELEVANT substantive procedures not listed above.)
 

　　2b.4 Contract revenue – Presentation and disclosure
 

　　Contract revenue and related classes of transactions need to be appropriately classified, presented and disclosed in the income statement.
 

　　Review a checklist completed by the staff of ABC or complete such a list where necessary.
 

　　Enquire about ABC’s procedures to identify advances from customers and retentions.
 

　　Review the financial statements for any unusual disclosure or omission, for example, check whether the amounts of contract revenue, advances received from contract customers and retentions are reasonable and consistent with evidence obtained during the course of the audit.
 

　　(Other RELEVANT substantive procedures not listed above.)
 

　　高顿网校小编寄语：如果你相信自己，你可以做任何事。