HI6026 Audit, Assurance and Compliance TRIMESTER 2, 2017 INDIVIDUAL ASSIGNMENT 1
Evaluation Worth: 20%
• This task is to be submitted in accordance with evaluation coverage acknowledged within the Topic Define and Pupil Handbook.
• It's the duty of the coed who's submitting the work, to make sure that the work is actually her/his personal work. Incorporating one other’s work or concepts into one’s personal work with out acceptable acknowledgement is a tutorial offence. College students ought to submit all assignments for plagiarism checking on Blackboard earlier than ultimate submission within the topic. For additional particulars, please discuss with the Topic Define and Pupil Handbook.
• Reply all questions.
• Most marks accessible: 20 marks.
• Due date of submission: Week 6, Friday at 5.00 p.m.
Case Research on Double Ink Printers Ltd (DIPL)
You're a senior supervisor with Stewart and Kathy and you've got been approached to undertake the audit of Double Ink Printers Ltd (DIPL). For the 12 months ended 2015, taking up from the small audit agency of Jay and Associates. DIPL print books, magazines and promoting supplies for the publishing, instructional and promoting industries on a print-on-demand foundation. Printing on demand implies that publishers can print the precise portions ordered by stores, quite than estimating prematurely what number of books are required and infrequently printing too few or too many. The typical printing turnaround time for DIPL is 2 enterprise days for small orders and 5 to 10 enterprise days for giant orders. As well as, 5 years in the past, DIPL additional expanded its earnings base by having writer’s titles accessible as searchable ‘ebooks’ that might be downloaded straight by readers from DIPL’s web site.
Buy and Stock
DIPL purchases 50% of its stock necessities of paper, ink and binding supplies from Australian sources and 50% from Asian nations. When stock obtained at DIPL’s warehouse (whether or not it's bought from Australia or Asia), the accounts payable clerk, Invoice Jimmy, information the arrival of the stock and in addition its worth and amount within the accounts payable system. Stock is paid for the related forex of the nation from which it's bought. Uncooked supplies have been valued at common price and an allowance for stock obsolescence has existed in earlier years to cowl the estimated decline in worth from the consequences of storage hazards. Work in progress is immaterial because of the fast turn- round time of printing jobs. Any work in progress is assessed at the price of uncooked supplies and labour and proportion of producing overheads primarily based on regular capability. At 12 months finish, the warehouse is closed from 28 to 30 June for stocktake, so gross sales have to be invoiced within the system by shut of enterprise on 27 June. The inventory will need to have been despatched to the client (that's, it should both be on monitor, ship or aircraft on its strategy to the client, or it should have already got arrived on the buyer; it should now not be in DIPL’s warehouse).
‘Print on Demand’ income and receivables
Every time a writer needs so as to add a ebook to DIPL’s ‘digital library’ (a server storing the entire writer’s books in a digital format, able to print), it emails the ebook to DIPL in PDF format. The digital library is backed up on the shut of enterprise day-after-day, with the backup tapes saved off website. As soon as the ebook is saved within the digital library, the publishers can order copies to be printed as required.
When the publishers affirm the order, the accounting system robotically retrieves particulars of the writer’s credit score document and stops any orders from publishers which have exceeded their credit score phrases and limits. A printout of the transactions historical past of the publishers is generated and have to be signed by each Helena keng, the top of publishing, and Jane Roger, the top of accounts at DIPL, earlier than the order can proceed, after the transaction historical past has been signed and dated, accounts receivable workers file it.
If there aren't any credit score issues with the order, it's processed and printed by informal workers within the related warehouse, who then load the books onto pallets for transport. When printing is completed, the gross sales clerk, Brown Pall, prepares an bill and dispatch docket and forwards them to the accounts receivable division. The accounts receivable clerk Homosexual Chan, checks the costs and arithmetic accuracy of the invoices and indicators the bill as proof of her verify. Homosexual information the gross sales each the accounts receivables subsidiary ledger and the overall ledger and books are shipped to the writer’s nominated vacation spot (or the writer will organize decide up on the warehouse if has its personal distributors). The consumer accepts legal responsibility for the products when they're obtained in accordance with the acquisition order, and indicators the dispatch docket as proof of supply.
The proceeds from every e-book sale are paid to the writer’s internet of a 5% fee.
Proceeds are despatched to publishers robotically upon obtain (the fee is withheld by DIPL). Income from the fee is recognised when is withheld from fee to the publishers.
DIPL additionally cost publishers an annual “storage price” payable 12 months prematurely, for maintaining the e-book on DIPL’s web site. Publishers are invoiced on the date the primary obtain of a title happens. As new books are downloaded on an ongoing foundation, the storage price is invoiced at totally different instances of the 12 months. Income from storage charges has been recognised within the month the charges are invoiced, however the truth that the charges are charged 12 months prematurely.
In September 2014, DIPL acquired Nuclear Publishing Ltd (NPL). The principle rationale behind the lay within the worth of the copyright NPL held over a wide range of specialized medical textbooks. Though the potential print run for the textbook was not massive, every textbook had a excessive revenue margin and had been utilized in universities the world over for a few years. DIPL acquired the enterprise operation of NPL (not the shares), paying internet property (together with the correct to the copyright). Nevertheless, in June 2015 an article was printed in a medical journal a few new concept that would end in NPL’s medical textbooks turning into out of date. If the brand new concept is legitimate, the textbooks are unlikely to be reprinted or used as textbooks at universities sooner or later, successfully making them unviable as e-books.
Some Funds from accounts receivables are obtained by cheque by the mail, and the cashier, Judy Bones, document these in an inwards remittance register when the mail is opened. She then banks the cheques and forwards the fee advices to Homosexual Chan for posting ton the accounts receivable ledger. Most funds, nevertheless, are obtained by digital funds switch (EFT). Every day, Judy downloaded the day before today’s receipts from on-line banking and supplies a replica to Gary for posting. Judy then reconciles the whole of the batch postings to accounts receivable to the quantity banked for the day. The assistant accountant, Boby Roger, prepares a financial institution reconciliation on the finish of every month.
Since DIPL’s incorporation, depreciation on property has been calculated utilizing the straight-line methodology to allocate their price over their estimated helpful lives, as follows:
• Printing presses as much as 20 years
• Different manufacturing gear as much as 15 years • Different gear as much as 10 years
Throughout 2015, DIPL has entered right into a 7.5 million mortgage from BDO Finance Ltd (BDO Finance). The mortgage has debt covenant’s requiring DIPL to take care of a present ratio of a minimum of 1.5 and a debt to fairness ratio of lower than 1. Failure to take care of these key monetary ratios underneath the desired benchmarks would end in BDO Finance having the correct to recall the mortgage.
Appointment of New CEO and inside Audit
William Jackson was appointed the brand new chief govt officer (CEO) of DIPL in January 2015. William has intensive expertise within the printing enterprise. The earlier CEO, Rebecca Kinds, who's now semi- retired, will stay on the board as a non-executive director. A element of William’s remuneration package deal is a efficiency bonus primarily based DIPL reaching an annual progress of 10% in whole income and 10% in internet revenue after tax. Based mostly on William’s advice, the board additionally established a brand new inside audit division headed up by Cody Baines, an ex-audit supervisor with a Large 4 audit agency and two different lately certified chartered accountants. Cody experiences on to the board.
New IT System
Throughout 2015, DIPL determined to spend money on a brand new IT system that will absolutely computerised and combine all the present accounting processes throughout the organisation, together with integration into the overall ledger system.
Underneath excessive stress from the board, the IT division at DIPL managed to get the brand new accounting system put in in June, though IT supervisor, Andy Rogers, complained a number of instances about how the set up was dealt with. Andy claimed that extra stress had been positioned on workers to get the system put in and that there was merely not sufficient workers to do the right reconciliation’s and testing earlier than the brand new system went reside previous to year-end.
Andy preliminary testing confirmed that some transactions performed round year-end weren't being allotted to the right interval. The issue seemed to be the interface between the brand new accounting system and one of many present software program methods. A software program ‘patch’ needed to be written to repair the issue.
Board year-end reporting discussions
As a board assembly held in June 2015, points regarding the forthcoming 12 months finish have been mentioned. William acknowledged that he believed that the valuation of uncooked supplies inventories at common price was now not acceptable as the present price of paper was considerably above the common price. Additional, he argued that the allowance for obsolescence of stock to cowl the estimated decline in worth from the consequences of storage hazards was mandatory, as such a loss was unlikely. William additionally acknowledged that primarily based on his expertise within the printing business he believed that DIPL’s printing presses had a possible most lifetime of 30 years, though he famous that one other main entity within the printing business adopted the coverage of depreciating its printing presses over a 20-year interval on a straight-line foundation, just like what DIPL had finished prior to now. After a lot dialogue, the board resolved that the allowance for obsolescence of stock be written again and that uncooked supplies be valued primarily based on a firstin, first-out (FIFO) foundation. As well as, following a overview of the e-book amenities by inside audit, Cody beneficial that in a report back to the board that DIPL change the strategy it used to account for its income from e-book publication to make sure compliance with the relevant accounting customary. The board agreed that the income from e-book can be recognised in accordance with the stage of completion of every transaction (i.e. proportion of completion methodology).
Assertion of Monetary Place
Word 2013 2014 2015
Money 647250 517788 347120
Accounts Receivables 1 2482500 4320000 5073309
Inventories 2 2256188 2671362 4180500
Complete 5385938 7509150 9600929
Property, Plant and
Tools three 7544062 8394750 15572062
Intangible Property ------- ------- 975000
7544062 8394750 16547062
Complete Property 12930000 15903900 26147991
Accounts Payable 1950000 3035250 3525000
Deferred income ---- ---- 697500
Curiosity-bearing liabilities 937500 862500 787500
Provisions 810000 1125000 1267500
Accruals 82500 97500 120000
Complete 3780000 5120250 6397500
Curiosity-bearing liabilities ---- ---- 7500000
Complete Liabilities 3780000 5120250 13897500
Web Property 9150000 10783650 12250491
Shareholders Fund 2250000 2250000 2250000
Retained Earnings 6900000 8533650 10000491
Complete Fairness 9150000 10783650 12250491
2013 2014 2015
Income from Operations 34212000 37699500 43459500
Value of Gross sales 28207500 31620000 36855000
Gross Revenue 6004500 6079500 6604500
Allowance for stock obsolescence written again ------- ------- 155588
Fee Revenue 108000 123000 130500
E-book storage charges 667500 1027500 1417500
Revenue from working actions 6780000 7230000 8308088
Promoting 83725 115923 125778
Audit Charges 112500 127500 135000
Unhealthy Debt 150000 195000 210000
Depreciation 249375 274312 472688
Reductions allowed 195000 285000 335500
Authorized Charges 74000 111500 137000
International Trade loss 38500 49750 ----
Charges 98500 106000 113500
Repairs and upkeep 224000 276500 306500
Salaries 1965000 2190000 2445000
Telecommunication prices 134750 141478 159785
Complete bills 3325350 3872963 4440751
Web earnings earlier than curiosity and tax 3454650 3357037 3867337
Curiosity expense 84379 83663 808038
Revenue earlier than tax 3370271 3273374 3059299
Revenue tax 1011081 982012 87116
Revenue after tax 2359190 2291362 2972183
Notes to the Monetary Report
2013 2014 2015
Account Receivable 2647500 453000 5313309
1 Allowance for uncertain money owed -165000 -210000 -240000
2482500 243000 5073309
Stock 2362500 2797238 4180500
2 Allowance for obsolescence -106312 -125876 ------
2256188 2671362 4180500
three Property, Plant & Tools
Land 2775000 3375000 3375000
Plant and Tools 5250000 5775000 13425000
Collected Depreciation -480938 -755250 -1227938
7544062 8394750 15572062
Query 1: As an auditor, you might be conducting your preliminary analytical procedures primarily based on the background data for DIPL contained within the case. Apply analytical procedures to the monetary report data of DIPL for the final three years. Clarify how your outcomes affect your planning choices for the audit for the 12 months ending 30 June 2015 (10 marks).
Query 2: You might be conducting your threat evaluation of DIPL, as a part of the planning on your audit for the 12 months ended 30 June. Determine two inherent threat components that come up from the character of DIPL’s enterprise operations. Clarify why it's a threat and the way it might have an effect on the chance of fabric misstatement within the monetary report (5 marks).
Query three: As a part of your audit of DIPL for the 12 months ended 30 June 2015, you might be contemplating the chance that fraud might have occurred (a) Based mostly on the background data for DIPL contained within the case, determine and clarify two key fraud threat components regarding misstatements arising from fraudulent monetary reporting to which DIPL could also be inclined. (b) Clarify how the chance components recognized in (a) above would have an effect on the conduct of the (a) audit. (5 marks).