(ii) The answers to any questions that the potential investors may raise in connection with the maximum

possible investment, borrowing to finance the subscription and the implications of selling the shares.

(7 marks)

Note: you should assume that Vostok Ltd and its trade qualify for the purposes of the enterprise investment

scheme and you are not required to list the conditions that need to be satisfied by the company, its

shares or its business activities.

(b) You are the audit manager of Jinack Co, a private limited liability company. You are currently reviewing two

matters that have been left for your attention on the audit working paper file for the year ended 30 September

2005:

(i) Jinack holds an extensive range of inventory and keeps perpetual inventory records. There was no full

physical inventory count at 30 September 2005 as a system of continuous stock checking is operated by

warehouse personnel under the supervision of an internal audit department.

A major systems failure in October 2005 caused the perpetual inventory records to be corrupted before the

year-end inventory position was determined. As data recovery procedures were found to be inadequate,

Jinack is reconstructing the year-end quantities through a physical count and ‘rollback’. The reconstruction

exercise is expected to be completed in January 2006. (6 marks)

Required:

Identify and comment on the implications of the above matters for the auditor’s report on the financial

statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending

30 September 2006.

NOTE: The mark allocation is shown against each of the matters.

(b) A summary of the information needed to satisfy our obligations under the money laundering legislation and

any action that should be taken before agreeing to become tax advisers to the Saturn Ltd group. (5 marks)

(ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior has

documented that the finance director explained that Batik commenced trading on 7 October 2005, after

being set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained.

(4 marks)

Required:

Identify and comment on the implications of the above matters for the auditor’s report on the financial

statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending

30 September 2006.

NOTE: The mark allocation is shown against each of the matters.

(b) Calculate the amount of input tax that will be recovered by Vostok Ltd in respect of the new premises in the

year ending 31 March 2009 and explain, using illustrative calculations, how any additional recoverable input

tax will be calculated in future years. (5 marks)

(b) Advise Maureen on deregistration for the purposes of value added tax (VAT) and any possible alternative

strategy. (8 marks)

An additional mark will be awarded for the effectiveness with which the information is communicated.

(1 mark)

(b) Describe the principal audit work to be performed in respect of the useful lives of Shire Oil Co’s rig platforms.

(6 marks)

(b) The chief executive of Xalam Co, an exporter of specialist equipment, has asked for advice on the accounting

treatment and disclosure of payments made for security consultancy services. The payments, which aim to

ensure that consignments are not impounded in the destination country of a major customer, may be material to

the financial statements for the year ending 30 June 2006. Xalam does not treat these payments as tax

deductible. (4 marks)

Required:

Identify and comment on the ethical and other professional issues raised by each of these matters and state what

action, if any, Dedza should now take.

NOTE: The mark allocation is shown against each of the three situations.

(c) You have just been advised of management’s intention to publish its yearly marketing report in the annual report

that will contain the financial statements for the year ending 31 December 2005. Extracts from the marketing

report include the following:

‘Shire Oil Co sponsors national school sports championships and the ‘Shire Ward’ at the national teaching

hospital. The company’s vision is to continue its investment in health and safety and the environment.

‘Our health and safety, security and environmental policies are of the highest standard in the energy sector. We

aim to operate under principles of no-harm to people and the environment.

‘Shire Oil Co’s main contribution to sustainable development comes from providing extra energy in a cleaner and

more socially responsible way. This means improving the environmental and social performance of our

operations. Regrettably, five employees lost their lives at work during the year.’

Required:

Suggest performance indicators that could reflect the extent to which Shire Oil Co’s social and environmental

responsibilities are being met, and the evidence that should be available to provide assurance on their

accuracy. (6 marks)

(c) Your firm has provided financial advice to the Pholey family for many years and this has sometimes involved your

firm in carrying out transactions on their behalf. The eldest son, Esau, is to take up a position as a senior

government official to a foreign country next month. (4 marks)

Required:

Identify and comment on the ethical and other professional issues raised by each of these matters and state what

action, if any, Dedza should now take.

NOTE: The mark allocation is shown against each of the three situations