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Faculty of Business and Law

*101637*

ACCT19064
Auditing & Professional Practice
TERM 1, 2005

Course Profile

Copyright Central Queensland University (CQU) 2005

Copyright material contained herein is either copied and/or communicated with the express
permission of the Copyright Owner or under the provision of the Copyright Act 1968.
CQU authorises the copying and/or communication to public access of this document provided
that copyright material, other than that created by the author/s, or for which permission has been
obtained, is restricted to CQU staff and students through a password protected Appendix.
CQU CRICOS Codes: 00219C - Qld; 01315F - NSW; 01624D - Vic

PART A
Course details
Course code

ACCT19064

Course name

Auditing & Professional Practice

School

School of Commerce

Level

Advanced Level

Units of credit

Six (6)

Prerequisite/Corequisite

Prerequisite: ACCT 19061

Suggested study commitment 12 hours per week or 144 hours per term
Term of offering

Term 1, 2005

Course website

http://www.bus.cqu.edu.au/CSTUDENT/

Campuses

Bundaberg, Brisbane, Fiji, Flexible Learning, Gold

Coast, H K College of Technology, Melbourne,
Mackay, Rockhampton, Sydney

Please read this Course Profile in conjunction with the current edition of the
Guide for Students at http://www.bus.cqu.edu.au/CSTUDENT/Guide.
This Course Profile contains important information. Please ensure that you read
it carefully. It is also strongly recommended that you keep this copy of your
Course Profile for future reference.
Throughout this document the term off-campus student means:

those students who are enrolled in the course by the Flexible, Distance or External
mode. This definition also relates to those students enrolled through the Hong Kong
Campus, Hartford Kuala Lumpur Campus, Hartford Singapore Campus and the
Chengdu campus, except where notified in Part B and/or Part C of this Course
Profile.
Students who are enrolled by the flexible mode and who attend lectures on any of
the Queensland campuses are still referred to as off-campus students.

Throughout this document the term on-campus student means:

those students who are enrolled in the course by the internal mode at any of the
Queensland campuses or any of the Australian International Campuses.

Course synopsis
In this course, students will examine the professional environment of the auditor,
particularly auditing standards and practice statements, legal liability, ethics and current
developments (eg. Audit Expectation Gap). Audit methodology and planning, internal
control and exposure to influences of EDP on audit testing will also be examined. The
course material, while drawing on audit theory, is very practically based for the needs of
future audit professionals. Statistical and non-statistical audit sampling is also covered
in detail.

Course objectives
On successful completion of this course, you should be able to:
1.
2.
3.
4.
5.
6.
7.

describe the environment in which the professional auditor operates. The

influences of Government, the Courts and the Professional Accounting Bodies are
considered
demonstrate the application of systems theory and the Risk-Based approach to the
practice of auditing
understand and explain the principles of Internal Control
describe the controls relevant to both manual and computerised accounting
systems, and explain their application
describe the internal controls applicable to the transaction cycles of a business and
apply detailed substantive testing of each cycle (including information systems
audit techniques, as required)
demonstrate competence in the examination of the final verification audit testing
of the financial statement balances
demonstrate an understanding of the practical application of the audit process.

Assessment
In order to pass this course you must obtain an overall mark of 50% or higher. Failure
to produce any piece of assessment will disqualify the student from obtaining a passing
grade.

Assessment for all students

Assessment item 1: Assignment 1:
Individual assessment

30%

Assessment item 2: Final Examination

70%

Assessment and examination information are located in Part C of this Course Profile
and are available online to CQU staff and students only.

PART B
Contact details
Campus lecturer name:
Campus lecturer contact details:

Phone:
Email:

Course coordinator name:

Soheila Mirshekary

Course coordinator contact details:

Phone: (07) 4930 9484

Email: acct20040-admin@cqu.edu.au

Faculty contact number:

Phone: (07) 4930 9637

URL: http://www.bus.cqu.edu.au/

A directory of assistance containing important telephone numbers and other information

for both on-campus and off-campus students will be provided on the web, before term
starts, at:
http://www.bus.cqu.edu.au/faculty/information.htm
If you are unable to access the web for this information please telephone the Faculty
office on your campus and a copy will be provided.

Course presentation
The presentation of this course for on-campus students comprises:

One x 2 hour lecture per week

One x 2 hour tutorial per week

Study Guide

Resource Materials Book

Solutions Manual

Course website required.

The presentation of this course for off-campus students comprises:

Course Profile

Study Guide

Resource Materials Book

Solutions Manual

Course website required

Regular student access to email is recommended for this course

Regular student access to the Internet is optional for this course.

Students are expected to follow a self-directed study schedule which meets the
required deadlines.

Course website
Access to the course website is required. Students must use the course website.

Required resources
Textbooks
You must purchase these textbooks or have access to them.
Leung, P, Coram, P, Cooper, BJ, Cosserat, GW & Gill, GS 2004, Modern auditing &
assurance services, 2nd edn, John Wiley & Sons, Brisbane.
ICAA/CPA Australia auditing handbook - 2005, (or disc), Prentice-Hall.
Mirshekary, S 2005, ACCT19064: Auditing and professional practice: study guide,
Central Queensland University, Rockhampton.
Mirshekary, S 2005, ACCT19064: Auditing and professional practice: resource
materials, Central Queensland University, Rockhampton.
Faculty of Business and Law 2004, Guide for students, 5th edn. (Available from the CQU
Bookshop at a nominal cost.)
Do not rely on the CQU Library for set textbooks, as multiple copies are not available.

Computer requirements
You must be computer literate and may find some type of spreadsheet or word processing
useful, but is not a required part of this course.

Software requirements
You may find the following computer resources useful, but not a required part of this
course.
There are some educational versions of auditing software packages available that use the
case approach to simulate an organisation and the audit process is accomplished using
computerised work papers.
Although none of these packages are required to be completed by you for this course, due
to time constraints, I recommend that you do purchase one and go through it for the
practical application of this course - you will probably need dBase, ASCII, EBCDIC,
Access, Lotus, ACL or Microsoft 'Excel' for this.

Some packages available are:

Arsan, N & Satterfield, N 1995, Sanfield Inc. - a computerised audit case, 2nd edn, Irwin,
Boston.
Bir, P & Gay, G 2003, Auditing case study and tutorial in ACL software, to accompany
Auditing and assurance services in Australia, 2nd edn, McGraw Hill, Australia.
Cooper, B, Adams, K & Lukaitis, S 2000, Melchem Industries Pty Ltd a computer audit
case study, Revised edn, John Wiley & Sons, Australia.

Felix, W et al. 1996, SCAD IV - a simulated case for audit decisions, McGraw Hill, New
York.
Paul, JW 1993, Peach Blossom Cologne Company short audit case, South-Western
Publishing Co., Cincinnati.
Schelluch, P, Topple, S, Jubb, C, Rittenberg, L & Schwieger, B 2004, IDEA data
analysis software 2001, to accompany Assurance and auditing: Concepts for a changing
environment, Nelson Australia.

Additional resources
Purchase of additional resources is not compulsory.
The Faculty has now adopted the Commonwealth of Australia 2002, Style manual for
authors, editors and printers, 6th edn, rev. Snooks & Co. Study Guides and Resource
Materials may have been printed prior to this Course Profile being prepared so those
documents may still reflect the referencing style as set out in the 5th edition of the Style
manual. Students should refer to the referencing style set out in the 6th edition and in
Chapter 2 of the Faculty of Business and Law 2004, Guide for students, 5th edition.

Recommended texts:
Purchase of recommended texts is not compulsory.
Cameron, R 2004, Study Guide to accompany Modern auditing & assurance services,
2nd edn, John Wiley & Sons.
Johnson, R 2004, Readings in auditing, John Wiley & Sons.
Northcott, P 1993, Ethics and the CPA - case studies, Australian Society of CPAs.
Wyber, J 2005, Auditing Lovitts, a case study in financial report auditing, John Wiley &
Sons.

Recommended references
The following is a brief list of useful general references:
Arens et al. 2002, Auditing in Australia: an integrated approach, 5th edn, Pearson
Education Australia.
Australian corporations legislation - Butterworths, Sydney.
Commonwealth of Australia 2002, Style manual for authors, editors and printers, 6th
edn, rev. Snooks & Co., John Wiley & Sons Australia, Ltd, Brisbane. (This text is
available on closed reserve in the CQU Library but there are also a nominal number of
copies available for borrowing)
De George, R 1999, Business ethics, 5th edn, Prentice-Hall, New Jersey.
Perspectives on contemporary auditing 1997, Audit Centre of Excellence, Australian
Society of CPA's, Melbourne.
Trotman, K & Roebuck, P 1998, Case studies in auditing, 2nd edn, Butterworths,
Sydney.
URL for Leung, P et al. 2004, Student Resources:

http://www.johnwiley.com.au/highered/auditing2e

Other references:
Australian Corporations Legislation Butterworths (latest edition), The Corporations Act
2001 is also available at http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/
The Institute of Chartered Accountants in Australia Members' Handbook.
CPA Australia, Members' Handbook.
AARF (Australian Accounting Research Foundation) 1983, Audit sampling - audit guide
No.1, AARF, Melbourne.
AARF 1990, Analytical review - audit monograph 1, AARF, Melbourne.
AARF 2001, Audit committees: best practice guide, 2nd edn, AICD, Sydney.
Adams, K, Grose, R & Leeson, D 1997, Internal controls & auditing, Prentice- Hall,
Sydney.
Boynton, WC, Johnston, RN & Kell, WG 2001, Modern auditing, 7th edn, John Wiley &
Sons.
Gul, F, Teoh, H, Andrew, B & Schelluch, P 1994, Theory and practice of Australian
auditing, 3rd edn, Thomas Nelson, Sydney.
Pound, G, Gay, G & Simnett, R 1997, Auditing concepts and methods, 3rd edn, McGrawHill, Sydney.
Smith, DG 1983, Analytical review, a research study, The Canadian Institute of Chartered
Accountants.

Websites
Students are encouraged to make full use of the resources available on the Internet for
assignments and general inquiries. All of the Big 4 Chartered Accounting firms have web
sites which have links to other sources of information as well. Two examples are:
www.kpmg.com.au and www.pwcglobal.com . Also the Australian National Audit Office
(ANAO) site at www.anao.gov.au provides some very useful information and other
linkages.

Proposed weekly schedule

Week

Week
beginning
dates

Module/Topic

Chapter / References Events and

submissions

7-11 March
2005

Introduction to Auditing

Leung: Ch 1

14-18 March

Professional Ethics

Leung: Ch 2

Business Ethics

Auditing Handbook,
F.1
Resource Materials

21-24 March

Legal Liability

Leung: Ch 3

Resource Materials
4

29 March - 1
April

Overview of Auditing

Leung: Ch 4

Audit Risk Assessment and

Materiality

Leung: Ch 5

Audit Evidence
5

4 - 8 April

11-15 April

Audit Planning and Internal Control

Leung: Ch 6 & 7

Review Key Analytical Ratios

Resource Materials

Audit Sampling

Leung: Ch 8
Study Guide

18 - 22 April

Designing Substantive Procedures

Leung: Ch 9

-General

Leung: Ch 10

-Selected Accounts
Auditing Sales and Receivables
Revenue Cycles
-Internal Control
-Sales Receipts, Sales Adjustments
-Accounts Receivable
8

2 - 6 May

Auditing Purchases, Payables and

Payroll

Leung: Ch 11

-Internal Control
-Cash Disbursements & Purchases
-Trade Creditors' Balances
Payroll Cycle
-Internal Control
-Payroll Cycle Transactions
9

9 - 13 May

Production Cycle - Inventory

Verification

Leung: Ch 12

Property, Plant & Equipment

10

16 - 20 May

Auditing Cash and Investments

Leung: Ch 13

Auditing Loans and Equity

Resource Materials

11

23 - 27 May

Completing the Audit

Leung: Ch 14

&

&

-Subsequent events

12

30 May - 3
June

-Going Concern

Leung: Ch 15
Leung: Ch 17 (pp 664670)

-Inquiry Regarding Litigation and

claims
-Analytical Procedures
-Management representations

Assessment
item 1 due
Tuesday 3
May

-Initial Engagements-Opening Balances

-Communication to management
Reporting on Financial Reports
Internal Auditing
6-8 June

Review Period

9 - 24 June

Examination Period

Assessment
item 2 Examination

Note: A recess is held during term. Please consult the CQU Handbook for specific dates
and other information at: http://handbook.cqu.edu.au

PART C
Assessment
Policies and procedures for assessment
Students must familiarise themselves with the following policies and procedures:
Assignment preparation
and presentation

Faculty of Business and Law Guide for students

Referencing style

Faculty of Business and Law Guide for students

http://www.bus.cqu.edu.au/CSTUDENT/Guide/default.htm
http://www.bus.cqu.edu.au/CSTUDENT/Guide/default.htm
or the University site
http://www.cqu.edu.au/referencing/
Please note: the Faculty of Business and Law uses the
Harvard (Author/date) style of referencing.

Assignment submission

Faculty of Business and Law Guide for students

http://www.bus.cqu.edu.au/CSTUDENT/Guide/default.htm

Assignment Extension
Policy

Course website

Assignment grading

Faculty of Business and Law Guide for students

http://www.bus.cqu.edu.au/CSTUDENT/admin/
http://www.bus.cqu.edu.au/CSTUDENT/Guide/default.htm

Plagiarism policy

http://www.cqu.edu.au/ppmanual/academic/plagiarism.pdf

Assessment details for ALL students

Assessment item 1individual problem solving
report (analytical report)
Due date:

Tuesday, 3 May 2005 - Tuesday of week 8

Weighting:

30% - refer to marking criteria for more

information

Length:

Maximum 3000 words

ASSESSMENT

Objectives
This assignment is designed to encourage your familiarisation with the earlier topics. It
consists of some questions regarding the first four course objectives numbers list as stated
in Part A.

Question 1
Audit independence Essay Question

(45 Marks)

Maximum 1800 words

The HIH Royal Commission handed down the findings of its report by Honourable
Justice Owen on the 4th April 2003. The report consists of three volumes that outline the
circumstances surrounding the collapse of the HIH insurance group and the reasons
behind the collapse. Of particular significance to the auditing profession are a number of
policy recommendations which Justice Owen has made and these are outlined in part
three of the report.
As part of the eleventh recommendation that Justice Owen outlined in his report (you can
access the Report of the HIH Royal Commission at <www.hihroyalcom.gov.au>) dealing
with financial reporting and assurance matters is,
A mandatory period of four years following resignation from an audit firm before a
former partner who was directly involved in the audit of a client can become a director
of the client or take a senior management position with the client. This restriction
should be extended to include key senior audit personnel.
Required:
Critically evaluate this statement related to the appointment of former company auditors
to the boardroom in terms of

significant implications for the future of the auditing profession in Australia.

a comparison with the recommendation of the Ramsay Report (2001) and the
Corporate Law Economic Reform Program (CLERP 9).

a comparison with the reforms contained in the US Sarbanes-Oxley Act 2002.

Your answer should consider the effect of the above recommendation that may play
in light of the audit failures.

10

11

Marking Criteria for Question 1:

Overall Presentation:
Structure i.e. use of paragraphs, introduction and conclusion

/5

Contents
1.

Accuracy of details of your discussion

/10

2.

Development of the audit issues

/15

3.

Use of research, application of auditing standards

/15

Total for the question

/45

Question 2
(20 Marks)
Following is a list of potential violations of the Joint Code of Professional Conduct.

Potential violations of ethical standards

Maximum 500 words
Auditor Situations:

1.

2.
3.
4.
5.

Fartash Modaresi, a public accountant, is unable to perform a service requested by a

client. Therefore, Modaresi refers the client to Amin, another public accountant,
who pay Modaresi $200 for referring the business. Neither Modaresi nor Amin
tells the client about the referral fee.
Faramarz Malekans wife owns 100 ordinary shares in an audit client of Malekans
public accounting firm, in which he is a partner.
Ashkan Zafar personally visits potential client without invitation for the purpose of
obtaining business from them.
Pejman Lawyer, a public accounting sole practitioner, serves as legal counsel to her
audit client.
A public accounting firm places a full-page, four-colour advertisement in Business
Review Weekly that describes some of the services it provides.

Required:
For each of the preceding independent situations, discuss:

(a)
(b)

Whether the public accountant is in violation of the Joint Code of Professional

Conduct (include any assumptions you feel are necessary)
The specific principle that is violated.

(Question adapted from Schelluch, P et al. 2004, Assurance & auditing, concepts for a
changing environment, Thomson, Australia.)

12

Marking Criteria for Question 2:

Contents
1.

Whether is violation or not

/5

2.

The specific principle that is violated

/5

3.

Justification of your assumptions using auditing standards

/10

Total for the question

/20

Question 3
(25 Marks):

Materiality
Maximum 700 words

Azmayan Limited is a listed company with a wide spread of shareholders. The company
is mainly involved in the manufacture and retail of civil engineering products. Your firm
has completed the financial report audit for the past five years and has not encountered
any significant problems or misstatements during this period.
Azmayan Limited has been operating with its present company structure and its basic
product range for the past 3.5 years. The company has built a strong reputation in the
marketplace based on its astute, conservative management style and quality produce
range.
The geotextile products are targeted mainly at the road construction market, which
represents 40% of Azmayan Limiteds revenue. These products have come under heavy
competition in the last 6 months, eroding Azmayan Limiteds profit margins significantly.
The following is a summary of Azmayan Limiteds key financial data:
Year

Turnover
(Sales)
$m

Operating
profit after
tax
$m

Operating
profit after tax
and
extraordinaries

Total
assets

Net assets
$m

$m

$m
20X4

1986

84

2333

1133

20X3

1899

108

108

2241

1028

20X2

1913

135

135

2426

923

20X1

2268

117

93

2081

870

20X0

2609

101

35

2444

908

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Required

(a)

(b)

From the information provided, identify and discuss the factors you need to
consider when setting the preliminary materiality for Azmayan Limited for the
20X4 financial year. Explain the impact each of the factors would have on your
materiality calculation.
Calculate the preliminary materiality figure to be adopted in the planning of the
20X4 financial report audit of Azmayan Limited. Justify your selection of the key
financial data used as a base for the materiality calculation and the percentage
applied to this base.

(Question adapted from Gay, G & Simnett, R 2003, Auditing and Assurance Services in
Australia, 2nd edn, McGraw-Hill Australia.)
Marking Criteria for Question 3:

Contents
/10

1.

Factors to take into consideration in setting preliminary

materiality and discussion

2.

Impact on the materiality number

/5

3.

Calculations of materiality figure based on the given

financial data

/7

4.

Justification of your decision

/3
/25

Total for the question

14

Assessment criteria
You will be penalised for simply quoting directly from the text or the Auditing Handbook
without further development/explanation by yourself. Further research may assist you in
adequately developing the topic and will probably result in a better mark.
Each question will be marked based on the following marking guide. Marks will be
awarded for development of the audit issues and evidence of research and application of
auditing standards. A Bibliography/Reference List is required for the assignment as a
whole (doesnt have to be produced for each question). A mark out of 10 will be given
for overall presentation, grammar and the bibliography.
Overall Presentation:
Spelling/grammar,

/5

Referencing/bibliography (as per Harvard style)

/5

Questions
1.

Auditor Independence

/45

2.

Potential Violation of Ethical standards

/20

3.

Materiality

/25

Total Marks out of 100, reduced to a mark out of 30

Total for assignment

/100
/30

15

Assessment item 2Examination

Due date:

924 June 2005, Examination period

Weighting:

70%

Length:

Duration 3 hours.

ASSESSMEN
T

There is an examination for this course.

The examination will be held during the examination period as set out in the Calendar of
Principal Dates which can be located in the Handbook. Students should also refer to the
Handbook for rules relating to examinations.
The examination is closed-book.

Closed-book means you are not permitted to take any materials into the
examination room with you.

You may take a non-electronic translation-only dictionary into the examination room in
accordance with CQU policy.
You may take a non-programmable, non-text-retrievable silent-only calculator into the
examination room in accordance with CQU policy.
Duration 3 hours.
Perusal time 15 minutes.
Course weighting for the exam 70%.
You may view examination rules at:
http://handbook.cqu.edu.au/pages/admissblk_6.html
The examination timetables will be made available later in the term.
You may view the examination timetable at:
http://www.cqu.edu.au/studinfo/admin/timetabling/index.htm
The format of exam is detailed below:
Part A 20 marks 10 multiple choice questions
You should answer all questions. The questions can be taken from any module of the
course.
Part B 24 marks Short answer questions
There are three (3) questions worth 8 marks each. You may need to discuss an auditing
standard, auditing concept or auditing procedure. Questions may be separated into
several parts. Questions can be selected from Modules 4, 5, 7, 8, 9, 10 and 11of the
course.
Also note that, where questions specifically refer to one of the auditing standards, you
will be given both the number and name of the standard concerned so you dont have to
memorise them. You will however need to have obtained an in depth knowledge of the
standards covered during the course by either the text, Study Guide or lecture notes.

16

Part C 16 marks Discussion question

This is similar in nature to the professional application questions at the end of each
chapter in your text book. The question may incorporate or cover several areas from
Modules 4, 5, 7, 8, 9, 10 and 11.
Part D 10 marks Practical question
This is either a compliance (attribute) or substantive (PPS) statistical question relating to
work covered in Module 6 (Study Guide) of the term (Chapter 8 of the text). Rely more
on the Study Guide than the text for type of question that may be asked. It is a practical
case where calculations are required.
NOTE: The examination information provided in this Course Profile also relates to
Deferred Exams. No separate advice will be provided in the case of a deferred
exam.

17