44 (a) (i) Identify and explain FOUR financial statement assertions relevant to account balances at the year end;
and
(ii) For each identified assertion, describe a substantive procedure relevant to the audit of year-end
inventory. (8 marks)
(b) Pineapple Beach Hotel Co (Pineapple) operates a hotel providing accommodation, leisure facilities and
restaurants. Its year end was 30 April 2012. You are the audit senior of Berry & Co and are currently preparing
the audit programmes for the year end audit of Pineapple. You are reviewing the notes of last week’s meeting
between the audit manager and finance director where two material issues were discussed.
Depreciation
Pineapple incurred significant capital expenditure during the year on updating the leisure facilities for the hotel.
The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the
straight-line method.
Food poisoning
Pineapple’s directors received correspondence in March from a group of customers who attended a wedding at
the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are
claiming substantial damages. Pineapple’s lawyers have received the claim and believe that the lawsuit against
the company is unlikely to be successful.
Required:
Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above
two issues.
Note: The total marks will be split equally between each issue. (8 marks)
(c) List and explain the purpose of FOUR items that should be included on every working paper prepared by the
audit team. (4 marks)
(20 marks)
