- 10 Marks
AAA – Nov 2015 – L3 – Q5a – Audit Evidence
Discuss why the audit of financial instruments is particularly challenging and explain the matters to be considered in planning the audit of Tap Co’s forward exchange contracts.
Question
a) You are the manager in Dee Kay Company, a firm of Chartered Accountants. You have just attended a monthly meeting of audit partners and managers at which client-related matters were discussed. Information relating to one client which was discussed at the meeting is given below.
Tap Co Tap Co is a clothing manufacturer, which has recently expanded its operations overseas. To manage exposure to cash flows denominated in foreign currencies, the company has set up a treasury management function, which is responsible for entering into hedge transactions such as forward exchange contracts. These transactions are likely to be material to the financial statements. The audit partner is about to commence planning the audit for the year ending 31 July 2014.
Required:
Discuss why the audit of financial instruments is particularly challenging, and explain the matters to be considered in planning the audit of Tap Co’s forward exchange contracts. (10 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit Challenges, Financial instruments, Forward Exchange Contracts, Planning
- Level: Level 3
- Topic: Audit evidence
- Series: NOV 2015