iii Determine acceptable variance and develop an expectation Number of pages

Iii determine acceptable variance and develop an

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(iii) Determine acceptable variance and develop an expectation: Number of pages Number of advertisements Price per advertisement $ Discount $ Net price $ Total per advertisement $ Double-page spread 8 4 12,540 (2,508) 10,032 40,128 Single-page spread 10 10 6,810 6,810 68,100 Half-page spread 5 10 4,400 4,400 44,000 Revenue per magazine 152,228 No. publications 24 Expected revenue 3,653,472 The acceptable variance is set at performance materiality of $165,000. (iv) Calculate variance and conclude : Actual revenue per trial balance $3,502,992 Expected revenue per SAP $3,653,472 Variance ($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 outcomes Unit Learning outcome 4 2. 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 process 9 1. Design, perform and evaluate the results of controls testing 10 2. Design, perform and evaluate the results of substantive testing
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Chartered Accountants Program Audit & Assurance Main exam suggested solutions and examiner’s feedback Page 9 Question 3 (20 marks) General comments Question 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 600 Audits of a Group Financial Report (ISA 600)) without applying them to the scenario.
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