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Hi6026 Tutorial Question Assignment 2.docx 1

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Assessment Task Tutorial Questions
Unit Code: HI6026
Unit Name: Audit, Assurance and Compliance
Assignment: Tutorial Questions 2
Due: 11:30pm 26
th
June 2020
Weighting: 25%
Total Assignment Marks: 50 marks
Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in
this unit
Unit Learning Outcomes Assessed:
1. Understand the audit planning procedures, evaluate the business risk and assess the internal
control
2. Prepare auditing procedures for transactions and balances by conducting control and substantive
tests
3. Understand the auditor’s reporting obligations and events after the balance date.
Description: Each week students were provided with three tutorial questions of varying degrees of
difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard.
The Interactive Tutorials are designed to assist students with the process, skills and knowledge to
answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for
weeks 6 to 10 inclusive and submit these answers in a single document.
The questions to be answered are:
Q1 - Week 6
As the auditor of Komsu Air Limited (KAL) that manufactures and installs large commercial
airconditioning systems. KAL typically has two or three large contracts (ranging from $6 million to
$10 million each) in progress at any one time. The contracts usually take up to six months to
complete, although unexpected on-site difficulties can result in lengthy delays in completion (of up
to 12 months). KAL finances its operations with a mixture of equity, long-term debt (secured by fixed
assets) and short-term bank loans.

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It is now May 2017 and your planning of the audit of KAL for the year ended 30 June
2017 is nearing completion. You have met with the management of KAL and, from those discussions
and a review of the preliminary information provided by KAL, you have identified several issues that
may have implications for the company’s ability to continue as a going concern. The relevant issues
are as follows:
Competition in the industry is becoming more intense, with some customers now installing their
own systems.
KAL’s bank has requested cash flow forecasts for the coming year to support the short-term
loans. It has indicated that it may need to withdraw funding or restructure debt if the forecasts
are not adequate. The review of work-in-progress indicates that all the contracts in progress at
year end are due for completion within six months of the balance date. There are no new
contracts in place for the coming year, although management has indicated that there are orders
currently being negotiated. The nature of the business is such that sales will fluctuate
considerably from year to year depending on the timing of one or two large contracts.
Assets consist chiefly of plant and equipment, some of which is specialised to the industry.
Debtors are significant, but recoverability is not considered an issue as the ongoing projects are
with reputable customers and management is not aware of any problems. Creditor balances are
at normal levels, and the company is in a positive working capital position.
Included in provisions is a large provision for warranty for one of KAL’s jobs completed at a hotel
two years ago. It appears that the air-conditioning system is still not working and the hotel is
now requesting a substantial refund of the contract price.
Required:
Explain whether you believe the area of going concern should be assessed as high risk and mitigating
factors for KAL’s audit for the year ended 30 June 2017. (10 marks, maximum 300 words)
Appropriateness of Going Concern (5 marks)
Mitigating Factors (5 marks)
Financial/ Operational/ Other Indicators
It founds that the management has failed to
develop proper sensitivity analysis which lead
them to loss both suppliers and customers key.
This would give them negative effects or
impacts towards their debt covenant
requirements.
The mitigation should include the proper
training of applying the method of
sensitivity analysis. They should have
enough time to conduct training for all
their staffs on how the method of this
analysis should be performed.
There is a big possibility of withdrawing funds
due to the defaults of loan terms submission.
Conducting forecasting of cash flow within
the exact or desired time period. In which,
the company can monitor or can observe
the possible cash flow within the time
frame given or applied based on the loan
term. This can be done through possible or
potential customers of the company. Also,
in addition to this, the company can have

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Assessment Task – Tutorial Questions Unit Code: HI6026 Unit Name: Audit, Assurance and Compliance Assignment: Tutorial Questions 2 Due: 11:30pm 26th June 2020 Weighting: 25% Total Assignment Marks: 50 marks Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit Unit Learning Outcomes Assessed: 1. Understand the audit planning procedures, evaluate the business risk and assess the internal control 2. Prepare auditing procedures for transactions and balances by conducting control and substantive tests 3. Understand the auditor’s reporting obligations and events after the balance date. Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 6 to 10 inclusive and submit these answers in a single document. The questions to be answered are: Q1 - Week 6 As the auditor of Komsu Air Limited (KAL) that manufactures and installs large commercial airconditioning systems. KAL typically has two or three large contracts (ranging from $6 million to $10 million each) in progress at any one time. The contracts usually take up to six months to complete, although unexpected on-site difficult ...
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