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During your subsequent events review you noted the following independent and
material items: 1.Queenscorp has been involved in a legal dispute with a competitor for a number of years. The dispute relates to alleged breaches of copyright by Queenscorp. On 27th July you discovered that Queenscorp had settled legal action out of court on terms more favourable than expected. 2.On 10th July one of Queenscorp’smajor product lines developed a fault that rendered the product unusable. Queenscorp became aware of the fault on 30 July. Although the fault posed no safety risks to consumers, Queenscorp decided to launch a full product recall on the following day. 3.Queenscorp has invested significant funds in developing a new type of cholesterol- reducing margarine. On 7th July Queenscorp applied for a patent for the margarine, only to discover that the competitor has lodged a similar application previously. The granting of Queenscorp’sapplication is now in doubt. 4.Queenscorp’sbank loan is conditional upon certain ratios maintained at all times. On 20th August you discovered that one of the ratios was breached for a 24- hour period on 18th August. 5.In early June, one of Queenscorp’slargest debtors informed Queenscorp that it was experiencing serious financial difficulties. On Queenscorp was informed that the debtor had gone into receivership. Preliminary reports suggest Queenscorp will recover only 10 cents in the dollar of the outstanding debt. Required (1)Describe your obligations as the auditor to each of the above subsequent events. (2)For each of the events described above, select the appropriate action from the list below and justify your response: AAdjust the 30 June 2011 financial report. BDisclose the information in a note to the 30 June 2011 financial report. CRequest the client recall the 30 June 2011 financial report for revision. DNo action is required. Question 1 continued over the page being 5 July,
End of Semester 2, 2016ACCT3000 Auditing Mock Final Exam PaperPage 9 of 10 Question 1 continued
(3)What additional information would you obtain in relation to each of the events described above? (Total 30 Marks) QUESTION 2 Consider each of the following independent and material situations. In each case, assume that the financial report has been prepared and audited for the year ended 30 June 2010. (a)Range Ltd, (Range) holds several parcels of land in suburban Sydney that are currently zoned non-residential. Range has valued land on a fair value basis under AASB 116 Property, Plant and Equipment. This year, however, Range revalued the land by adopting a registered valuer's estimate of the market value of the land. This estimate included a substantial increase in value based on the general community expectation that the land will soon be rezoned for residential use.