Reference no: EM131954883

Assignment -

Clues on how to approach the Audit Report - Workplace Audit Simulation

Question 1. Refer to the letter from the ATO in the "Case Study Working Files" that has the reference, BMC 2011/06-1. Also refer to the attachments entitled, GST [Detail - Accrual], GST [Detail - Cash] and the BAS for the quarter, 1/4/2013 to 30/6/2013. In the letter, the ATO confirms, based on the information initially given to the ATO when "BMC" applied for GST registration online, that they would account for GST quarterly, but on an accrual basis. You can assume that the details in this letter are correct.

Also refer to the "BMC" extract from their "Policies and Procedures" manual, point 2 entitled, "GST and BAS reporting" in the "Case Study Working Files". In this, it states that business is registered for GST reporting quarterly on a CASH BASIS. Using the Payroll Activity [Summary] report contained in the "Case Study Working Files" together with the , GST [Detail - Cash] report, the Accountant for "BMC", Joe Frush has used these reports to complete and submit the last quarter's GST and PAYG.

In your opinion, after investigating this BAS as a sample document as part of your audit, is the BAS correct taking into account all of the evidence and documentation above? If no, what should be the correct payment to the ATO have been?

Question 2. You begin to have serious doubts regarding "BMC's" viability for the 2012/2013 financial year and the issue of it being a "going concern" now enters into your thoughts. You decide to have a closer and more detailed look at the company and begin with the previous financial year's financial statements (Profit and Loss and Balance Sheet to June 2012), the Auditor's Report and the Director's Declaration.

Refer to the "Case Study Working Files" for access to these documents. You notice that even though they did not begin trading as at 30 June, 2012 there was considerable Balance Sheet activity with the purchase of Non-Current Assets and the establishment of a Bank Loan. Furthermore, a considerable amount of Capital was injected into the business by one owner and the Current Assets were totally made-up of cash in the bank.

As a result, "BMC" decided to opt for an independent audit on its financial statements by your audit firm which was then under the control of the Audit Partner, who signed-off the Auditor's Report on behalf of your firm. The Audit Partner has now moved-on to another division of your organisation namely Insolvency and Reconstruction. After inspecting the four documents, is it reasonable to assume that the Auditor's Report and the Director's Declaration are correct? Please give your reasons.

Question 3. During the current financial years' audit, it comes to light after a casual conversation that the previous Audit Partner of your firm was in fact the first cousin of the Director and Chairman of the Audit Committee of "BMC", Mr Anthony B. Cucco. Furthermore, you are convinced that this matter was never disclosed between both organisations. Would you say that there is a significant issue involving the professionalism, ethics, and independence of both these people? If so, what are they specifically and how do you think they may have affected the outcome of the audit? And which Australian Accounting Standards (ASA) and Accounting Professional Ethical Standards (APES) would specifically concern you with respect to this issue?

Question 4. Classification Issues

You take a closer look at the classification of the elements of both the "Profit and Loss Statement" and "Balance Sheet" for the 2012/2013 financial year. The "Profit and Loss Statement" and maybe the "Balance Sheet" don't seem to be properly classified and may require correction. Do you think that they conform to the requirements of the Australian Accounting Standards in their presentation? Please give your reasons. And which Australian Accounting Standards (ASA) would specifically concern you with respect to this issue?