Calculate materiality level for audit assignment
Background
There are two parts to the assignment. The first part requires students to set up an entity’s books in MYOB and process transactions to relevant accounts. The second part requires students to prepare a document for the Audit Manager.
You have recently graduated from VU and are now working for a small accounting firm. The firm recently purchases MYOB software for internal use. Upon learning that you had recently completed an accounting degree, the firm’s partner asks you to set up and process a number of transactions into relevant accounts.
Required
1. Set up the firm on MYOB.
2. The financial year must be 1 April 2015 to 31 March 2016
3. Process the transactions listed in Part A_MYOB_S12016 into relevant accounts.
4. Print out and submit reports for the year ended 31 March 2016.
Part A
No. Task required Details 1 Set up a company
Set system date 1/04/2015
Company details: sem1 2016 (example: Tom sets up a company called Tom Ltd)
ABN 32 889 888 887
Address 300 Ballarat Road, Footscray, VIC 3010
Phone (03) 4444 2222
Fax (03) 4444 3333
Email yourname@yournames.com.au (example: tom@tomltd.com.au)
Financial year 01/04/2015 to 31/03/2016
Conversion month April
No. of accounting periods 13
Industry classification Service
Type of business Accounting Firm
2 Set up accounts module
Edit an account 1-1110 – cheque account, change to cash at bank 4-1000 – Fee Income, change to Service Revenue
1-1200 -Trade Debtors, change to Accounts Receivable 2-1200 Trade Creditors, change to Accounts Payable
Add an account 1-2300 Inventory
3 Delete an account 2-1120 Diners Club, delete this account
Entering opening balances 1-1110: $32000; 1-1200: $16500; 2-1310: $1500; 3-1110: $23500; 3-1210: $23500
4 Set up sales module
Sales Layout for Invoices service
Credit limit $20,000
Tax code GST
Payment method Cheque
Payment due In a Given # of Days
Balance Due Days 30
5 Set up customer cards A&Z, ABN: 32 333 666 567, 5 15 king street, kew, VIC 3025, phone: 03 1234 5678, email: tom@a&z.com.au. Payment method: cheque. Income account: 4-1100.
B&Y, ABN: 32 456 789 222, 10 queen street, kent, VIC 3032, phone: 03 2345 6789. Payment method: cheque. Income
account: 4-1100
Enter a customer’s opening balance A&Z, invoice no.: 182, date: 01/04/15, Total including tax: $16500, Tax code: GST.
6 Set up purchases module
Purchase layout for invoices Service
Supplier credit limit $20,000
Tax code for suppliers GST
Payment method Cheque
Payment due In a Given # of Days
Discount days 0
Balance due 30
% Discount early payment 0
Set up supplier cards C&X, 1 third street, charlie, VIC 3003, phone: 03 9876 5432, ABN: 32 566 778 999
D&W, 2 fourth street, bravo, VIC 3004, phone: 03 8765 4321, ABN: 32 777 444 321
2 Set up inventory module
Enter item profile data Item no. 4401, name: accounting package, status: buy, sell and inventory, COGS account: 6-1000, Income account: 4- 4000, Inventory account: 1-2300, buying unit of measure: each, number of items per buying unit: 1, tax code: GST, minimum level of restocking alert: 5, primary supplier: C&X, supplier item number: 4401, default reorder quantity: 4, base selling price: $750, selling unit of measure: each, number of items per selling unit: 1, tax code: GST.
Item no. 5502, name: tax package, status: buy, sell and inventory, COGS account: 6-1000, Income account: 4-4000, Inventory account: 1-2300, buying unit of measure: each, number of items per buying unit: 1, tax code: GST, minimum level of restocking alert: 5, primary supplier: D&W, supplier item number: 5502, default reorder quantity: 4, base selling price: $650, selling unit of measure: each, number of items per selling unit: 1, tax code: GST.
3 Enter transactions
Purchase of inventory
Tax invoice: 300, supplier: C&X, description: 5 copies of the accounting package at $500 each, invoice amount: $2500 (GST exclusive), tax code: GST, date: 16 May 2015.
Purchase of inventory
Tax invoice: 123, supplier: D&W, description: 4 copies of the tax package at $450 each, invoice amount: $1800 (GST exclusive), tax code: GST, date: 26 June 2015.
Service revenue
Tax invoice: 11, order: C101, customer: A&Z, description: accounting service re preparation of A&Z financial statements, revenue account: 4-1000, invoice amount: $3000 (GST exclusive), tax code: GST, date: 10 July 2015.
Sale of goods
Tax invoice: 111, order: D202, customer: B&Y, description: 1 tax package at $650, revenue account: 4-4000, invoice amount: $650 (GST exclusive), tax code: GST, date: 30 August 2015.
Payment from customer
Receipt no.: 1, customer: A&Z, ID#: CR001, payment method: cheque, amount: $16500, tax code: GST, date: 1 May 2015.
Service revenue
Tax invoice: 112, order: e103, customer: B&Y, description: consulting fees re preparation of B&Y tax accounts, revenue account: 4-1000, invoice amount: $2000 (GST exclusive), tax code: GST, date: 12 September 2015.
Expense payment
Cheque no. 150, supplier: topad, payee: topad advertising agency, amount: $1100 (GST exclusive), tax code: GST, date: 9 October 2015.
4 Print reports
Trial balance – 13th Period 2016 Balance Sheet as of 31 March 2016
Profit and Loss Statement (Accrual) April 2015 – March 2016 Account Transactions (Accrual) 01/04/15 to 31/03/16
PART B
1. You have recently been appointed external auditor of the entity. You are assisting your Audit Manager in planning for the audit of the entity’s financial statements.
2. You are required to download the annual report published by the following entity:
– Pacific Star Network Network Limited (http://www.pacificstarnetwork.com.au/)
3. Using information from chapters 3 and 4 of the textbook, prepare a document for your Audit Manager. Your document must include key information set out below.
4. You have accepted and communicated your decision to the client in the engagement letter. The audit fee is $65,000.
Required
With reference to Chapters 3 and 4 of the textbook, prepare a document for your Audit Manager. Your document must include the followings:
1. Executive summary
2. Introduction
3. Key information:
a) Gain an understanding the client
b) Identify five (5) significant accounts most at risk of being materially misstated
c) Set planning materiality
d) Assess what can go wrong (audit risk assessment) for each of the five (5) accounts selected in (b)
4. Conclusion
5. Appendix
6. References
Hints and Tips
1. You are required to plan the audit using only information that is publicly available. That is, you only use the information that is published by the entity either on its website or printed materials.
2. You must download and use the pro-forma document on VU Collaborate.
3. In identifying significant accounts, you are advised to use analytical procedure
– simple comparison to identify five (5) accounts most at risk of being materially misstated.
4. When making preliminary judgements about materiality levels and developing preliminary audit strategies for significant assertions, you are required to consider the Income Statement, Balance Sheet and the notes.
5. To calculate materiality level for this audit assignment, you are advised to calculate 1% of the total revenue account balance, i.e. 1% of total operating revenue of $20.86 million = $20.86 million x 0.01 = $208,860.
6. In considering what can go wrong for each of the five (5) accounts selected, you must assess the audit risk for each of those accounts using the audit risk model.
7. Quoting directly from textbooks and reports will increase the similarity index. Quoting without proper referencing will also increase the similarity index. As this assignment requires you to use auditing theory to prepare a document for a real-life organisation, quoting from textbook does NOT meet the requirements. Students are advised to prepare their own document.
8. VU Collaborate has the facility to report on whether your assignment is copied from other sources. Penalty of four (4) marks may apply for poor presentation. Serious breaches will be reported to the disciplinary panel.
9. Submit your assignment early. A penalty of two (2) marks per day applies to late submission.
10. If you want to remove the previous version of the assignment on VU Collaborate, submit a blank assignment or a new version.
