Submission Deadline
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Before 6pm on:
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15 working days after deadline (All Levels)
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Module title & code
AUDITING AC34-3
Assignment number and title
1- Assignment
Assessment type
INDIVIDUAL REPORT
Weighting of assessment
50%
Module learning outcomes
1.Knowledge and Understanding
Explain various professional, legal and ethical issues associated with the auditing profession.
2.Skills and Abilities
Apply auditing standards and procedures to conduct an audit and communicate the findings in an appropriate format.
What am I required to do in this assignment?
You are the audit manager at Kargeen and Co and you have been provided with financial statements extracts and the following information about your client, Global Medico SAOG. Global Medico SAOG is an established pharmaceutical company listed on the Muscat Stock Exchange. The Company has for many years generated 90% of its revenue through the sale of two specific cough, cold and flu medicines. The company’s financial year-end is scheduled at 30 April.
In recent years, Global Medico SAOG has seen a considerable rise in the level of competition that it faces in the pharmaceutical sector of Oman. Market size staying constant, the demand for its products has significantly declined. Income has also fallen due to the adverse effect of two high-profile court cases, where Global Medico’s services to assist the prosecution were found to be in error. Not only did this lead to adverse publicity for Global Medico, but a number of clients withdrew their contracts with the company.
Global Medico has recently been experiencing trading difficulties. One of its major customers who owes OMR 0.6 million to Global Medico has declared insolvency and ceased trading. It is highly unlikely that any of these dues will be received. However, the balance has been included within the financial statements extract below.
A senior employee resigned from Global Medico, stating that lack of investment in new analysis machines was increasing the risk of incorrect information being provided by the company to its stakeholders. The General Manager, Sales has recently resigned from Global Medico and is yet to be replaced. This is getting delayed as the company offer letters have been rejected by a few candidates.
In the past, the company did not invest sufficiently in new product development and so has been trying to remedy this by recruiting suitably qualified research and development staff. However, this has proved more difficult than anticipated. As such no product enhancement and development has really taken place in the past few years. However, they managed to recruit one staff member last week and they strongly believe that the new products which will be developed will also be ready for launch soon. These new launches will have a positive impact on trading levels and these will improve @ 25% minimum. They countered that by that logic the company is a going concern.
In addition to investment in recruiting staff, the company invested OMR 1 million in plant and machinery. The company wanted to borrow this sum but was unable to agree suitable terms with the bank as there is another pending loan. They, therefore, used its overdraft facility. As a result of the above the company’s overdraft balance has grown substantially. The directors have informed you that the bank overdraft facility is due for renewal next month and they are confident that it will be renewed.
Due to the cash crunch, the company has been generally slow in paying its suppliers and some of Global Medico SAOG’s suppliers have been paid much later than usual. Few suppliers have withdrawn credit terms offered and henceforth the company will be needed to pay cash on delivery to ensure smooth supply of its raw materials. Few suppliers are also threatening legal action to recover the sums owing. One supplier has filed for a claim of one million Rials.
Due to its financial difficulties, Global Medico missed a loan repayment and, as a result of this breach of the loan covenant, the bank has asked that the loan of OMR 4.8 million be repaid in full within six months. The directors have decided that in order to conserve cash, no final dividend will be paid for the financial year 2019/ 2020. The Directors have approached another bank for a loan to cover the previous loan and are hopeful of procuring the loan on release of the audited financial statements.
Extracts from the financial statements and other relevant information are given below.
Statement of Comprehensive Income
2019/2020
2018/19
OMR (million)
OMR (million)
Revenue
5
8.8
Cost of sales
-3
-2.9
Gross profit
2.9
5.9
Other operating expenses
-1.8
-1.3
Operating profit
-1.1
4.6
Finance costs
-1.5
-0.7
Profit/loss before taxation
-0.4
3.9
Taxation
0
-1.3
Net (loss)/profit for year
-0.4
2.6
Statement of Financial Position
2019/2020
2018/19
OMR (million)
OMR (million)
Assets
Non-current assets
Property, plant and equipment
6.8
7.3
6.8
7.3
Current assets
Closing Stock
2.9
1.9
Accounts Receivable
1.9
1.3
Cash and Bank balances
–
0.3
4.8
3.5
Total assets
11.5
10.8
Equity and liabilities
0
0
Ordinary Share Capital
0.5
0.5
Retained earnings
–
2.4
0.5
2.9
Non-current liabilities
Long-term Loans
4.8
6.2
Provisions
1.8
0.3
6.6
6.5
Current liabilities
Accounts Payables
2.8
1.5
Bank overdraft
1.7
0
4.5
1.5
Total equity and liabilities
11.5
10.8
A cash flow forecast prepared internally shows Global Medico requiring significant additional cash within the next 12 months to maintain even the current level of services. The directors have produced a cash flow forecast and forecast as negative for the forthcoming financial year. The annual audit is now nearly complete. The directors have communicated to you that they do not intend to make any disclosures in the notes to the financial statements regarding the uncertainty over the going concern status. As the audit senior you have reported to the engagement partner that Global Medico SAOG is in financial difficulties.
Required
Write a report addressing the following:
Using analytical review where appropriate, evaluate the matters which may cast doubt on Global Medico’s ability to continue as a going concern.
Explain the audit evidence in respect of the cash flow forecast which you would expect to find in your review of the audit working papers on going concern.
Discuss the scope and main requirements of ISA 570. As per ISA 570, what are the relevant audit procedures to be applied in performing going concern reviews?
Discuss few other indicators (other than those covered by the case) of an organisations inability to continue as a going concern.
Explain the possible reasons why the directors may wish to exclude disclosures related to uncertainties in the notes to accounts.
Auditors may give various opinions when reporting on going concern status. Discuss each possible situation where an opinion may be given.
Deliverables
Submission
Submission of the report will be done via Turnitin Link on MOVE.
At the time of submission, you need to make sure that the assignment is your own and all the sources have been acknowledged.
GENERAL INSTRUCTIONS
Your work will be graded on the following aspects:
This is individual work
The assignment MUST be submitted on-line (through MOVE) on or before the due date.
Your assignment shall reflect the depth and breadth of your original analyses clearly and coherently.
Use of the relevant academic literature to support ideas and issues discussed. The range of academic sources such as texts and journals to support your arguments and comments.
This is an individual assignment and carries a weighting of 40% (report) +20% for viva towards the final module grade.
This assignment follows an essay format and must be original and creative. An analytical piece of work is required. The use of ‘cut and paste’ approach will be penalized. It must be presented in a structured manner, with appropriate cover page, content page, introduction, body (with appropriate heading / sub-headings), conclusion, references, page numbered and any required appendices.
The cover page should be attached with the assignment and uploaded through MOVE (on-line). Name of the student, The Programme, Module Title, Assignment Title and number of words must be reflected on the cover sheet.
All assignments must adhere strictly to the deadlines specified by Majan University College. Failure to hand in the assignment for any reason and without prior approval and a valid written extension from the module tutor will not be marked and will be awarded a grade G (0) irrespective of the quality of the work. See section 4.4 of Under Graduate student handbook. Soft copy of the student handbook is available on MOVE
Unacknowledged use of work of others (plagiarism) is regarded as a dishonest practice and will be penalized. See section 5.7 & 5.8 of Under Graduate student hand book.
Any reference to authors and other writers shall be quoted with due acknowledgement in your assignment report using the Harvard Referencing System. For details of Harvard referencing style, refer section 7.3 of Under Graduate student handbook.
Submission
The Assignment Submission link on MOVE will be open, a week ahead of the submission date.
You can submit your assignment multiple times, until the submission deadline. Note that Turnitin could take up to 24 hours to produce similarity reports for submissions.
The last submission, within the deadline, will be considered as your final submission.
Assignments should be submitted by 6 pm on the day of the deadline. There is a grace period until midnight to allow for any technical difficulties, but any assignments submitted after this will be counted as late. Technical problems will not be accepted as an excuse for submitting after the day of the deadline.
You are required to tick to confirm the statement: “I confirm that this assignment is my own and all sources have been acknowledged. I understand that the use of other people’s work or ideas without acknowledgement is plagiarism and could result in failing the assignment”. You will not be able to submit the assignment without ticking this box.
The similarity percentage of your final submission will be one of the factors considered, for assessing the originality of your assignment. However, the decision to report an assignment for plagiarism is taken by the Lecturers, who mark your assignment.
The Lecturers will consider a number of factors such as Assignment type, Part of the assignment where similarity occurs, Nature of similarity etc., along with the similarity percentage of your assignment, to assess the originality of your assignment. Therefore, similarity percentage will not be accepted as a basis for disputing academic judgments regarding plagiarism.
Note that the similarity percentage of your submission can change until the submission deadline if the submissions of other students have similarity to your assignment. Therefore, the similarity percentages are not final, till the assignment submission is closed
Is there a word limit (Number of Words ± 10%)?
2500 words (+/- 10%)
What do I need to do to pass? (Threshold Expectations)
Use analytical procedures to evaluate the factors which cast doubt on the going concern abilities of the entity
Mention audit evidence which auditors will like to find in relation to cashflows in the review.
Explain the relevant audit procedures to be applied in performing going concern reviews;
Explain the possible reasons why the directors may wish to exclude disclosures related to uncertainties in the notes to the account
Discussion the various opinions that can be given by auditors in relation to going concern.
Discussion on scope and main requirements of ISA 570
How do I produce high quality work that merits a higher grade?
Critical reasoning is consistently evident across the discussions. The tasks have relevant and adequate discussion and detailed narrations.
Evidence of exemplary understanding of relevant theory and research. Reference to appropriate theoretical background, auditing standards, especially ISA 570.
How does assignment relate to what we are doing in scheduled sessions?
During the scheduled sessions, guidance and explanation will be given regarding various Indicators, Procedures, and Evidences related to Going Concern and ISA 570 in detail.
How will my assignment be marked?
Your assignment be marked according to the threshold expectations and the criteria on the following page.
You can use them to evaluate your own work and estimate your grade before you submit.
No
Criterion
Weighing (%)
Sub Standard / No Attempt
(0 Marks)
Poor
(20 Marks)
Satisfactory
(40 Marks)
Good
(50 Marks)
Very Good
(60 Marks)
Excellent
(70 Marks)
Outstanding
(100 Marks)
1
Information Research and completion of tasks 15%
15
There is no evidence for information search/ Tasks are incomplete.
Sources not used to support substantive assertions or argument.
Information search is not adequate. Very limited resources are used to discuss the tasks.
Limited and uncritical use of a restricted range of sources
Information search is evident. There is an attempt to address some tasks. All the tasks lack proper focus in discussion.
Although the information supports the task, some of them are not properly analysed and lack paraphrasing at some areas.
Relevant information search is evident, but not adequate.
There is a good attempt to address the tasks.
All the tasks are discussed but one or two tasks lack focus or clarity.
Very good usage of variety information from various sources. Contents are properly paraphrased. The usage of information can be better if it relates to the context.
All tasks are discussed properly.
Excellent application of the relevant information from variety of sources. Excellent usage and quoting of the literature at relevant discussions. All the tasks are discussed astutely with proper focus.
Use of a wide range of appropriate sources, indicating critical awareness of their status and relevance.
Exceptional use of a wide range of appropriate and current sources, focusing on research based reviews indicating personal research and critical awareness of their status and relevance.
2
Understanding of Issues 25%
25
No evidence of understanding the issues.
Limited evidence of understanding the issues.
General understanding of the various issues. Some reference to related theoretical background is evident.
Good understanding of the various issues. Majority of the tasks show evidence of good understanding of related appropriate theoretical background.
Evidence of very good understanding of relevant theory and research in all tasks.
Evidence of excellent understanding of relevant theory and research. Reference to appropriate theoretical background provides support to the discussion.
Some illustrations that support the theoretical background are evidenced in the discussions.
Evidence of exemplary understanding of relevant theory and research. Reference to appropriate theoretical background provides support to the discussion.
Illustrations are provided that amplify the theoretical background.
3
Application and analysis 35%
35
Lack of analysis of information. No discussion is evident.
The discussed tasks are completely out of focus.
Task are not properly addressed.
Limited evidence of critical evaluation of material.
Poor analysis of information. Although there is evidence for some discussion, they are discrete and lacking focus. It does not reflect critical application of the concepts to the case.
Use of a range of appropriate sources. but without critical evaluation, or missing some significant items
Evidence of a general critical stance. Evidence of limited critical evaluation in some areas, with some lost opportunities or misunderstandings.
There is good evidence for critical analysis and reasoning in some areas.
Evidence of critical evaluation in some areas, although some material not evaluated.
Use of a wide range of appropriate sources with some critical awareness of their status and relevance
Very good application of the information to the case. There is evidence for in-depth analysis of data. However, all tasks are not consistent in analysis and can be presented in a better manner.
Evidence of good
critical appreciation
and evaluation of
relevant theory and research and a systematic attempt to relate it to the topic
Excellent analysis of the information and precise application to the case. Critical reasoning is evident while discussion of all the tasks.
Evidence of thorough critical appreciation and
evaluation of relevant theory and research and a systematic and
creative attempt to relate it to the topic
Critical reasoning is consistently evident across the discussions. The tasks have exemplary discussion and detailed narration.
4
Presentation, Structure and language 15%
15
The report is unorganized to the point of being virtually unreadable.
Lacks cohesion and orderly flow
The assignment has unacceptable failings in structuring and / or clarity of written expression
The report is difficult to read due to overwhelming errors or misspellings
Though discussion of the ideas is clear, a coherent flow of thought is not evident.
The report is unorganized, but can be read. Poor flow of the report structure.
The assignment has failings in structuring and / or clarity of written expression, which impair its capacity to communicate
Frequent compositional errors or misspellings, but the report can be read
Evidence for a coherent presentation is evident, but lacks uniformity throughout the essay.
The report is somewhat organized. The flow is not coherent and needs improvement.
While the assignment has some failings in structuring and / or clarity of written expression, these do not impair its capacity to communicate.
More than occasional errors or misspellings.
The report is well organized. There is orderliness in the structure. Coherence is also evident but there is still scope for improvement.
A generally well-structured and expressed assignment, that communicate clearly.
Well executed. Few grammar or writing errors. Reads easily. Is fairly well organized
The report is well organized with a cohesive discussion. The structure of the report is excellent.
An assignment whose clear structure and expression significantly enhances its argument
Reads easily. Is well organized
The structure is exemplary. Execution is excellent. Discussions are free of grammar or writing errors. A clear layout augments the presentation.
Excellent overall organisation of the report.
5
Referencing 10%
10
The references do not clearly comply with the basic requirements of HARVARD STYLE format.
The references do not clearly comply with the basic requirements of HARVARD STYLE format. The references are inadequate to support the literature used in the report.
Sources used show limited relevance and currency
The report shows some compliance to HARVARD STYLE referencing, but shows many errors.
Very few references quoted which are inconsistent with the amount of literature used in the report.
Some sources of information are relevant while others are dated
The report demonstrates a basic level of HARVARD STYLE referencing, but still contains major deficiencies. No sophistication is evident i.e. Websites do not follow Harvard Referencing style.
Majority of the sources are relevant and current.
The report demonstrates a solid understanding of the basic elements of HARVARD STYLE formatting. In-text citations if presented at relevant areas will lend more appropriateness to the report.
Sources used to support the discussions are relevant and current.
The report demonstrates excellent HARVARD STYLE formatting skills. In-text citations are presented at relevant areas.
Consistent use of relevant and current sources that enhance the discussions.
Accurate use of Harvard Referencing style.
Student recognizes the concept of intellectual property, can defend him / herself if challenged, and can properly incorporate the ideas / published works of others into their own work building upon them.
Skillful use of credible, relevant and current sources of information that augments quality of discussion.
5