67%(3)2 out of 3 people found this document helpful
This preview shows page 10 - 12 out of 18 pages.
(iii) Determine acceptable variance and develop an expectation:Number of pagesNumber of advertisementsPrice per advertisement $Discount $Net price $Total per advertisement $Double-page spread8412,540(2,508)10,03240,128Single-page spread10106,810–6,81068,100Half-page spread5104,400–4,40044,000Revenue per magazine152,228No. publications24Expected revenue3,653,472The acceptable variance is set at performance materiality of $165,000.(iv) Calculate variance and conclude :Actual revenue per trial balance $3,502,992Expected revenue per SAP $3,653,472Variance ($150,480)The variance is below that of the pre-defined threshold of $165,000. A1 has sufficient, appropriate audit evidence that the advertising revenue is free of material misstatement and no further work has to be performed. Learning outcomesUnitLearning outcome42. Discuss and demonstrate the auditor’s responsibility to gain a thorough understanding of the entity and its environment82. Explain how to develop an overall audit plan to ensure an effective and efficient audit3. Assess how the nature, timing and extent of tests of controls and substantive procedures are impacted by factors discovered in the audit planning process91. Design, perform and evaluate the results of controls testing102. Design, perform and evaluate the results of substantive testing
Chartered Accountants Program Audit & AssuranceMain exam suggested solutions and examiner’s feedbackPage 9 Question 3 (20 marks)General commentsQuestion 3 considered a group audit at two different stages of the audit process – planning and risk assessment and reporting. Part A tested candidates’ ability to apply their knowledge of group audits by outlining instances of non-compliance and identifying areas of compliance. In Part B candidates were asked to determine whether a set of financial statements were materially misstated, and were assessed on their knowledge of audit opinions and audit report implications. Specific feedback on each part of Question 3 is provided below.Part A Part A (a) was generally well answered and many candidates obtained full marks. The majority of candidates identified that a review would not be appropriate for the Brazilian subsidiary as it was a significant component due to its individual financial significance to the group; however, fewer candidates identified that the materiality for the Chilean subsidiary was inappropriate as it had been set at the same level as group materiality, when it should be lower. A number of candidates incorrectly suggested that analytical procedures should be performed at a group level for both the South African and the Russian subsidiaries, while an audit of specific account balances, as indicated in the draft scoping memorandum, would be appropriate.There was a mixed set of responses to Part A (b). Candidates who followed a methodical approach and used the facts provided in the background information tended to score well; however, many candidates just copied sections of the relevant standard (ISA 600Audits of a Group Financial Report (ISA 600)) without applying them to the scenario.