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(b) What are the auditor’s responsibilities in relation to fraud? (5 Marks)(c) How are tests of controls related to the evaluation of control risk? (5 Marks)(Total 15 Marks)QUESTION 2Austellite Ltd (Austellite) is an Australian firm manufacturing satellite navigation systemsdesigned for use in passenger vehicles, and exports these exclusively to car manufacturers inSouth Korea and Japan. Your firm has acted as the auditors of Austellite since its incorporationfive years ago. Austellite has been given unqualified audit reports during this period and therewere no audit issues of significance encountered. During the planning stage of the audit you discovered that the South Korean market has grownexponentially over the past three years and has become the company’s most significant customerbase, representing 70 percent of Explorer’s revenue. All contracts are payable in US dollars. Dueto language differences, customers are unlikely to respond to requests to confirm outstandingbalances at year end. In the past six months, the volume of orders from Austellite’s South Koreancustomers has fallen 15 percent, and two major customers have requested extended paymentterms. Austellite is under pressure from Chinese competitors who have undercut Austellite’s pricesby 25 percent.Required(a)Considering the information provided, determine the two key account balances atrisk of material misstatement. Briefly justify your answer. (4 marks)(b)For each account balance identify the key assertion at risk. Briefly justify youranswer. (5 Marks)(c)Recommend two substantive audit procedures you could perform in response toeach risk identified above. (6 marks)(Total 15 Marks)Page 6 of 10
End of Semester 1, 2018ACCT3000 Auditing Mock Final Exam PaperQUESTION 3
The head office of Bright Lights Ltd, wholesalers of electrical equipment, has asked you to reviewthe system of control over cash collection at the Victorian branch because it suspects thatirregularities are taking place. The branch is the largest single outlet of the company and hassubstantial annual sales invoiced by the branch.Enquiries reveal the following procedures for invoicing sales and collecting cash. (Cash refers tocurrency and cheques).1.There are two invoice sets that are used for cash sales and credit sales respectively.2.When payment for cash sales is received by the cashier, one copy of the invoice isstamped as paid and filed alphabetically, and the other is given to the customer.3.Credit sales invoices are sent to the customers.4.Mail is opened by the secretary to the credit controller, who passes any cheques to thecredit controller for his review, without recording the amounts received.5.The credit controller gives the cheques to the cashier by depositing them in a tray on thecashier’s desk.6.The cashier then makes a listing of the cheques, which is used by the credit controller forposting to the accounts receivable ledger.