Outline the main contents of an auditor’s report

Outline the main contents of an auditor’s report


Instructions to candidates:

a) Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

b) Answer ALL of Part A, any THREE questions from Part B and any TWO questions from Part C

c) Part A carries 10% of the marks, Part B carries 60% of the marks and Part C carries 30% of the marks.

Marks for each question are shown in [ ]

d) Non-programmable calculators are permitted in this examination


1. Outline the main contents of an auditor’s report. [10]


2. a) Explain the rights and duties of an auditor. [10]

b) Explain the term audit sampling. [10]

3. Explain briefly how you would verify the following items:

a) Share capital and reserves

b) Bank balances

c) Vehicles

d) Trade payables (trade creditors) [5 each]

4. a) Explain the principal reasons for the collection and production of audit working papers. [10]

b) Discuss the effect of subsequent events (post balance sheet events) on the financial statements and on the auditor’s report. [10]

5. Explain the following terms:

a) Letter of engagement

b) Internal control

c) Inherent risk

d) Corporate governance [5 each]


6. Write short notes on THREE of the following:


b) Personal allowances

c) Capital gains tax (CGT)

d) Tax evasion [5 each]

                                                                                                                                                         Continued overleaf

7. The following information applies to any personal tax calculations:


20% on the first £30,000 of taxable income

40% on the next £70,000 of taxable income

50% on any further taxable income


Single person £9,000

Additional allowance of £5,000 can be claimed by one of the partners in a marriage


Up to the age of 49 a maximum of 15% of gross pay can be paid tax free into a qualifying pension fund

From age 50 a maximum of 20% can be paid in

Lyra, aged 46, is a single person who earns £320,000 per year. Lyra has paid 10% of her gross pay into a qualifying pension fund. Lyra has paid £510 in respect of professional subscriptions. Lyra has also paid £2,100 in respect of expenses which are allowable against tax.

Hamid, aged 56, is married (and claims the additional allowance) and earns £130,000. Hamid has paid

20% of his gross pay into a qualifying pension.


Calculate the taxable pay and the total tax payable for EACH of the following:

a) Lyra [9]

b) Hamid [6]

8. The following is the summarised internal profit and loss account of UGO Ltd after its first year of trading:


Sales 1,600,000

Cost of sales (800,000)

Distribution costs (300,000)

Administration expenses (180,000)

Depreciation of equipment (25,000) *

Depreciation of IT equipment (45,000) *

*Already included in either distribution costs or administration expenses above.

Other information:

Original cost of equipment 150,000

Original cost of IT equipment 160,000

Corporation tax (i.e. company taxation) is charged at 20% of the taxable profit.

Initial writing down allowances are:

25% as regards equipment

50% as regards IT equipment

Included in the distribution costs is £22,000 which is deemed non-allowable.


Calculate UGO Ltd’s total taxable profit AND the total tax charge for the year. [15]

Price: £ 40

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