Mock Exam

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|This paper must be returned. | FAMILY NAME............................................................. | |Candidates are not permitted to |FIRST NAME................................................................. | |remove any part of it from the |STUDENT NO................................................................ | |examination room. |SEAT NO..................................ROOM NO.................... |

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MOCK EXM
CLOSED BOOK EXAMINATION

Unit:ACCG340 Auditing and Assurance Services

Date: 2011/2012

Time allowed: 2 hours plus 10 minutes reading time

Total number of questions: SIX

Instructions:
o All questions to be answered in the space provided.
o Multiple Choice questions to be answered on the computer marking sheet provided. o All booklets must be returned.
o Dictionaries may not be used.
o Calculators may be used

|Q. |VALUE |MARK | |1 |25 | | |2 |20 | | |3 |15 | | |4 |15 | | |5 |15 | | |6 |10 | | | | | | |TOTAL |100 | |

QUESTION ONE (20 MARKS)

Bath Pumps Ltd is considering entering into a joint venture with Avon Spas Pty Ltd and has requested its auditors Oliver King and Co to:

Prepare a set of financial statements for Bath Pumps Ltd, drawn up in accordance with Australian statutory reporting requirements at 31 March 2000 (the company’s financial year ended 30 June); and to issue an audit report upon the financial statements, addressed to the shareholders of Bath Pumps Ltd.

The Managing Director of Bath Pumps Ltd informed Oliver King’s senior partner that he would appreciate the completed accounts and audit report being available by 15 May 2000 as he would be meeting with the Director of Avon Spas Pty Ltd and, in accordance with their previous request to him, would be handing them a copy of the audited accounts. The financial statements which were duly prepared, audited and delivered by 15 May 2000 included a material item of specialised plant and equipment at directors’ valuation. The valuation which had been made by an engineer employed by Bath Pumps Ltd subsequently turned out to have been substantially overstated.

In addition, a large amount of money which Bath Pumps Ltd was supposed to have had on deposit with an offshore American Bank at 31 March 2000 was subsequently found not to exist. Falsified bank statements and correspondence had been submitted to the auditors and the auditors’ request for direct confirmation from the American bank had been intercepted by management of Bath Pumps Ltd fraudulently completed and returned to the auditors.

Consequently, Bath Pumps Ltd is placed in receivership and Oliver King and Co are sued for negligence by the court appointed receiver.

Avon Spas Pty Ltd which lost a substantial sum of money in its joint venture with Bath Pumps Ltd has also sued Oliver King and Co claiming that the decision to enter the joint venture would not have been made had the true financial position of Bath Pumps Ltd been known and that the auditors had been negligent in carrying out their duties.

Required:

By citing relevant case law, discuss the liability, if any, of Oliver King and Co to:

Bath Pumps Ltd:
Avon Spas Pty Ltd

(B) The concept of 'reasonable skill and care' has been discussed in a number of legal Cases. The standard of care expected is likely to change as...
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