You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2018:(a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances (b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King then sells these on its own account. Your analysis strongly suggests that the apportionment of costs to houses and units sold has been kept low to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and hold to their view that the stock of properties is correctly valued (c) You have completed the audit of Grand Resort Ltd (Grand Resort) for the year ended 30 June 2015. The audit partner suggested that the value of properties on the Gold Coast were overstated by $16 million, a figure which was twice the level of materiality set for the audit. As a result of discussions with the audit committee, the CEO of Grand Resort agreed to revise the valuations downward by $10 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement of the financial report of $6 million. The audit partner is now considering the effect of the misstatement on the auditor’s report. (d) Grand Event Ltd arranges for popular overseas entertainment artists to perform in Australia. The band Eclipse was booked by Grand Event to play in major cities across the country. Grand Event’s written contract required the company to pay the band in US dollars but, in order to reduce costs, it did not hedge the amounts. Subsequent to year end, the Australian dollar fell against the US dollar and a substantial loss relating to the band’s tour was predicted. The management of Grand Event tried unsuccessfully to renegotiate the band’s contract and has been unable to obtain finance to cover the expected shortfall. Grand Event has now cancelled the tour and expects a substantial claim from Eclipse. It is clear to you, as the auditor, that Grand Event does not have the income, cash or other assets to sustain such a loss.
You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2018:
(a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances
(b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King then sells these on its own account. Your analysis strongly suggests that the apportionment of costs to houses and units sold has been kept low to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and hold to their view that the stock of properties is correctly valued
(c) You have completed the audit of Grand Resort Ltd (Grand Resort) for the year ended 30 June 2015. The audit partner suggested that the value of properties on the Gold Coast were overstated by $16 million, a figure which was twice the level of materiality set for the audit. As a result of discussions with the audit committee, the CEO of Grand Resort agreed to revise the valuations downward by $10 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement of the financial report of $6 million. The audit partner is now considering the effect of the misstatement on the auditor’s report.
(d) Grand Event Ltd arranges for popular overseas entertainment artists to perform in Australia. The band Eclipse was booked by Grand Event to play in major cities across the country. Grand Event’s written contract required the company to pay the band in US dollars but, in order to reduce costs, it did not hedge the amounts. Subsequent to year end, the Australian dollar fell against the US dollar and a substantial loss relating to the band’s tour was predicted. The management of Grand Event tried unsuccessfully to renegotiate the band’s contract and has been unable to obtain finance to cover the expected shortfall. Grand Event has now cancelled the tour and expects a substantial claim from Eclipse. It is clear to you, as the auditor, that Grand Event does not have the income, cash or other assets to sustain such a loss.
Step by step
Solved in 2 steps
