data analytics software in the corporate reporting exam

Data Analytics Software CR PQ 5 Copyright © ICAEW 2021

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Data Analytics Software in the

Corporate Reporting exam

Practice Question 5

Elephant Ltd


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ADVANCE INFORMATION

Before attempting this question, you should refer to the Advance Information. This comprises:

1. The Advance Information document; and

2. The nominal ledger data for Elephant Ltd (Elephant) for the 11 months ended 30 November 2018, contained within the Data Analytics Software.

PRACTICE QUESTION 5

To access the data analytics software please click here

Assume that the current date is 15 March 2019

You are an audit senior working for Smith & Ives LLP, a firm of ICAEW Chartered Accountants. The final audit visit for Elephant started last week and you have joined the audit team today as audit senior. Tian Turner, the audit engagement manager, gives you the following briefing: “You will have reviewed the notes of my introductory meeting with Frank Wright, Elephant’s finance director, and a working paper prepared by a Smith & Ives audit assistant. You will also have familiarised yourself with the data for Elephant for the 11 months ended 30 November 2018. “Data for December 2018 has now been imported into the Data Analytics Software from Elephant’s nominal ledger, so the full year nominal ledger data for the year ended 31 December 2018 is now available. “Last week, I met with Frank Wright. Frank updated me about some changes since our meeting in August 2018. I have summarised this for you (Exhibit 1). “An audit assistant has identified an audit matter which I would like you to consider (Exhibit 2). “I have set out instructions for the tasks I would like you to perform in a separate document (Exhibit 3). “Materiality has been set at £30,000.” Requirement Respond to the audit engagement manager’s instructions (Exhibit 3).

Total: 45 marks Ignore any adjustments for current and deferred taxation

https://icaew21.inflosoftware.com/redirect/Exam?code=ALCRMOCK21EX


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Exhibit 1: Changes at Elephant – prepared by Tian Turner Frank updated me about the following changes:

1. New contract In October 2018, Elephant appointed a new sales manager, Jenny Hines. On 1 December 2018, Jenny signed a new contract with one of Elephant’s Contract sales customers. Jenny provided Andrea Bloggs with the following breakdown of the contract and its financial impact.

Contract terms £ Payment terms

£3,000 monthly fee for ongoing support for

brand development for 24 months period

72,000

Monthly - 35 days after

invoice

One-off fee in exchange for 18% discount on

services and goods supplied in the two financial

years ending 31 December 2019 and 31

December 2020.

228,000

Payable on 1 January

2021

Total 300,000

December 2018 was a very busy month and Frank told me that he did not get chance to raise any invoices for this new contract. He therefore asked Andrea to record this transaction for £300,000 in Elephant’s nominal ledger. She made the posting in Account 54800 in December 2018. No cash has yet been received.

2. New internal control Frank informed me that a new internal control had been introduced on 1 December 2018. He has been concerned that accounts assistants are too junior to have responsibility for posting very large transactions. He was particularly concerned that in December 2018 there were risks of cut off errors, in addition to other risks of junior staff posting significant transactions at any time during the year. The new internal control is that, from 1 December 2018, accounts assistants should not post any transactions with an amount of £100,000, or more.


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Frank said that he hopes that Smith & Ives will be able to rely on this new internal control in their audit of Elephant for the year ended 31 December 2018. Exhibit 2: Audit matter by audit assistant

Exhibition sales assignment for MonaHomes In 2018, Elephant signed a contract for an exhibition sales assignment for a caravan manufacturer, MonaHomes. The assignment had three parts. The first part of the assignment was the production of a ‘Switched Back’ video for MonaHomes, which was completed and invoiced in January 2018 (Transaction ID SIN18405). In September 2018, for the second part of the assignment, Elephant designed and built an exhibition stand and seating for MonaHomes for an exhibition at a caravan trade fair where the promotional video was shown. The services were completed and invoiced in September 2018 (Transaction ID SIN19262). As the third part of the assignment, in September 2018, Elephant provided 2,000 boxed kits as promotional gifts for the exhibition. The goods were delivered and invoiced in September 2018 (Transaction ID SIN19347). The payment terms agreed with MonaHomes for the three invoices were 30 days after the invoice date. All three sales invoices are still outstanding at the year ending 31 December 2018. Unfortunately, the exhibition stand fitted by Elephant for MonaHomes at the caravan trade fair collapsed and several visitors were seriously injured. At 31 December 2018, MonaHomes said that it was unable to pay Elephant’s invoices as it is experiencing financial difficuties arising from a court case commenced against it by the injured visitors. Elephant applies IFRS 9 and uses a predetermined matrix for the calculation of allowances for impairment losses allowances in respect of receivables. Days overdue Expected impairment

loss allowance

1 to 30 5%

31 to 60 15%

61 – 90 20%

90 + 25%

Elephant has also been informed that the injured visitors have appointed a legal team and a court case has commenced against Elephant. A claim for damages of £100,000 is expected to be made against Elephant by the visitors. Elephant’s legal team has said that, at 31 December 2018, there is an 80% proability that Elephant will be found liable. However, the highest amount


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it would reasonably be expected to pay as settlement will be £60,000. The court case is expected to be settled by January 2021. Elephant uses an annual discount rate of 8%. Exhibit 3: Audit engagement manager’s instructions – prepared by Tian Turner

As part of our audit planning for Elephant for the year ended 31 December 2021, I would like you to:

(1) For the new contract (Exhibit 1) set out and explain the appropriate financial reporting treatment.

(2) For the new internal control (Exhibit 1):

• Use the Data Analytics Software to evaluate whether the control has been applied effectively in December 2018. Identify any evidence of where the new internal control has not been appropriately applied.

• Set out relevant audit procedures relating to any related internal control deficiencies.

(3) Using preliminary analytical procedures (see guidance below) and other information, identify and explain the key audit risks for revenue, direct payroll and gross profit.

For each audit risk identified, set out any information and explanations you require from management.

Guidance on preliminary analytical procedures The relevant account codes for revenue and direct payroll costs are:

Account code Account description

51010 Domestic sales

51020 Overseas sales

62100

62105

Studio salaries

Studio NI

62130

62135

Fitting salaries

Fitting NI

62120

62125

Sales salaries

Sales NI


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You should identify specific transactions in the data analytics software where they represent items of significant audit interest.

(4) For the audit matter identified by the audit assistant (Exhibit 2):

• Set out and explain the financial reporting treatment in Elephant’s financial statements for the year ended 31 December 2018. Include relevant journal entries.

Set out key audit procedures that Smith & Ives should perform.


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PRACTICE QUESTION 5 - SOLUTION NOTES

(1) For the new contract (Exhibit 1) set out and explain the appropriate financial reporting

treatment.

New contract entered into from 1 December 2018

Appropriate financial reporting treatment.

The following entry has been recorded in Elephant’s nominal ledger

Account £ Effective

date

User Created

date

SRC00

6975

23040 –

prepayments

control

300,000 18/12/2018 ABloggs 24/12/2018

SRC00

6975

54800 other

income

300,000 18/12/2018 ABloggs 24/12/2018

The description is “Sales accrued reverse in January 2019”.

IFRS 15, Revenue from Contracts with Customers requires revenue to be recognised when a

performance obligation is satisfied.

Contract terms £ Payment terms

£3,000 monthly fee for ongoing support for brand development for 24 months period

72,000

Monthly 35 days after invoice

One-off fee in exchange for 18% discount on services and goods supplied in the two financial years ending 31 December 2019 and 2020

228,000

Payable on 1 January 2021


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Total 300,000

The £3,000 monthly fee should be recognised over time – as the contract commenced on 1

December 2018 – only £3,000 should be recognised in respect of this element of the contract. The

remaining amount should not be recognised.

The second element of the contract has been incorrectly recognised in two ways:

First of all, because the receivable is only due to be received in two years’ time there is an

element of finance included within the figure. Therefore, the receivable should be recorded at the

present value using the discount rate of 8% = £195,473.

Each year the receivable is ‘grown’ by 8% as the discounting unwinds and the amount is

recognised as finance income. Therefore, in the year ending 31.12.2019, Elephant would

recognise:

£195,473 x 8% = £15,638 as finance income which would be debited to the receivable and

credited to the statement of profit or loss.

Second, as the receivable entitles the customer to a discount over time, again it would be

incorrect to recognise the entire £195,396 for this element of the contract in the year ended

31.12.2018.

I would recommend that this amount is taken to deferred income. The correcting journal is:

Correcting journal required:

£

Debit ‘other revenue’ Account code - 54800 300,000

Credit Prepayment control – Account code

23040

300,000

Being reversal of accrued income incorrectly

recognised

Debit accrued income - Account code 22200 3,000

Credit Domestic sales - Account code –

51010

3,000

Being recognition of one month revenue

Debit Receivable 195,473


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Credit Deferred income 195,473

Being recognition of receivable at 31.12.2018

for the second element of the contract.

In the year ending 31 December 2019, the finance income would be released to the statement of

profit or loss

£

Debit Receivable 15,638

Credit Finance income 15,638

Also, for 2019 about half of the £195,473 (depending on expected sales value pattern over the

two years) would be released to profit or loss in 2019 to match against the reduced revenue from

the discounts given. So:

£

Debit Deferred income 97,500

Credit Revenue 97,500

(2) For the new internal control (Exhibit 1),

• use the Data Analytics Software to evaluate whether the control has been applied effectively in December 2018.

• identify any evidence where the new internal control has not been appropriately applied and set out relevant audit procedures relating to this internal control deficiency.

New internal control

Use the Detect module with the ‘Large Value’ routine and the Visualise function. Click on December 2018 transactions, using the Effective period visualisation. This enables a search for transactions over £100,000 posted by the three accounts assistants (Tanya, Andrea, Emma). This investigation reveals three transactions equal to, or in excess of, £100,000, posted by accounts assistants in December 2018. These are as follows:

Account Account

number

Transaction ID

Description

£ Dates (Effective) (Created)

Posted by Document


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Invoice finance account

20021

NOM059201

TRN

100,000

30/12/2018

5/01/2019

ABLOGGS

NOM

Other income

54800 SCN006975 Sales accrued reversed Jan

2019

300,000 18/12/2018

24/12/2018

ABLOGGS

SIN

Other income

54800 SRC006974 Reversal of un-invoiced sales in Dec 2017, now invoiced

Sept 2018

170,294 17/12/2018

23/09/2018

TPOTTS

SIN

Of the three transactions equal to, or in excess of, £100,000, posted by accounts assistants in December 2018, two were posted by Andrea Bloggs and one was posted by Tanya Potts. Frank Wright the FD informed Tian in their meeting, that he had asked Andrea Bloggs to record the above transaction for £300,000 in Elephant’s nominal ledger. This appears to be senior authorisation to over-ride the new internal control. However, some review by Frank of the posting to ensure it had been made correctly would be appropriate, given the size of the transaction. Given that the transaction appears to be incorrect, it can be regarded as high risk. This also seems to justify having the new internal control, despite the apparent failures in its implementation.

Audit procedures:

• Document the three exceptions identified which have breached the new internal control.

• Inquire whether specific authorisation was given to accounts assistant Users to post any of these transactions (see above) or whether they have been posted on the Users’ own initiative.

• Investigate why the new internal control has not been implemented in each of the three cases identified. Inquire of management and inquire of individual users. For example, is management aware that these transactions have been posted in breach of the new internal control? Are there controls in place to highlight to management that large postings have taken place by account assistant Users?

• Investigate whether the transactions have been reviewed by management after postings have taken place.

• Assess whether transactions are high risk.

• Review the transactions for accuracy and appropriateness (for example the £300,000 transaction posted by A Bloggs appears to be incorrect).

(3) Using preliminary analytical procedures (see guidance below) and other information,

identify and explain the key audit risks for revenue, direct payroll and gross profit.

For each audit risk identified, set out any information and explanations you require from management.

Guidance on preliminary analytical procedures


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The relevant account codes for revenue and related costs are:

Account code Account description

51010 Domestic sales 51020 Overseas sales 62100 Studio salaries 62105 Studio NI 62130 62135

Fitting salaries Fitting NI

62120 62125

Sales salaries Sales NI

You should identify specific transactions in the data analytics software where they represent items of significant audit interest.

Preliminary analytical procedures

Revenue

From Financial Statement view - Taking the whole year, there is an increase in Income of 14%

overall compared with the prior year (2017: £2.707m 2018: £3.076m).

Split of Domestic and overseas - and between revenue streams and calculation of gross profit

Revenue

Using Account view to drill down into the detailed revenue accounts, the revenue by income

stream can be identified for the year ended 31 December 2018. The AI explains that certain users

are exclusively responsible for posting transactions relating to specific income streams as follow:

Income stream in Account codes 51010 and 51020

Users making postings

Contract sales

Frank Wright and Emma Davids

Exhibition sales

Jo Smith

Other sales Tanya Potts and Andrea Bloggs

By setting the Primary and Secondary variables to Users in the Stacked Bar Chart in the Explore module, it is possible to determine the amount of revenue posted to each income stream by reading the figures off the columns for each user.


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Gross profit

The gross profit is calculated by deducting the direct payroll costs and where appropriate reallocating the relevant studio wages to Exhibition sales and Other sales. The same proportions have been used as 2017 – ie 4 members of 20 studio staff (20%) allocated to Exhibition sales and 3 out of 20 staff (15%) to Other sales. Information and explanations from management will be required regarding whether these ratios are still appropriate for the year ended 31 December 2018.

Key transactions in December 2018

There are two key transactions which have been posted in December 2018 in Account code 54800 (Other Income) which require further consideration.

These transactions are:

• A reversal of sales invoices posted by Tanya Potts in this account for £170,294 – transaction SRC 006974. I would need to confirm with management, but it would appear that this transaction should be debited to ‘Other sales’ as it has been posted by Tanya who only posts sales transactions for Other sales; and

• Sales accrued reversed in January 2019 for £300,000 posted by Andrea Bloggs SRC 006975

The accrued income this account for £300,000 has not been included in the analysis below because the financial reporting appears to be incorrect and this amount incorrectly recognised in DAS – see comments above for part (1). A spreadsheet has been used to assimilate the information and set out below the calculation of gross profit per income stream for the year ended 31 December 2018.

Account code Contract

sales

Exhibition

sales

Other

sales Total

£ £ £ £

51010 – Domestic sales 987 423 602 2,012

Less SRC 0006974 (170) (170)

432

1,842

51020 – Overseas sales 474 148 309 931

Total revenue 1461 571 741 2,773

Less:


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62100 – Studio salaries 600

62105 – Studio NI 56

Total studio salary cost 656 656

62130 – Fitting salaries

27

62135 – Fitting NI

4

Total fitting salary cost 31 31

62120 – Sales salaries

331

62125 – Sales NI

33

Total sales salary cost 364 364

Total salary costs 656 31 364 1,051

Allocate studio salary costs

from Contract sales to:

Exhibition salary costs (131) 131

-

Other sales salary costs (98) - 98 -

427 162 462 1,051

Gross profit for management accounts 1,034 409 279 1,722

Gross profit % 71% 72% 38% 62%

Compare to 2017 per advance

information 55% 69% 61% 60%

Analysis and information and explanations

Overall, the gross profit percentage has increased from 60% to 62%, however there are variations

between the income streams. Other sales gross profit has fallen from 61% to 38%. It is necessary

to ask management to confirm the following:

• Confirm with management that the users are still posting the same income streams as 2017.

• Confirm that the allocation of studio salaries remains the same as 2017.

• Confirm with management that SCR 006974 £170,294 related to Other sales.

The key transaction identified above for £170,294, related to the release of a debit balance on

account code 22200 accrued income which had a brought forward balance of the same amount.

The release then to sales is correct as the journal description indicates that sales invoices have

now been raised and posted in September 2018 therefore crediting revenue. Without releasing

this brought forward balance, revenue would have been overstated. However, it is necessary to


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confirm with management that the entire amount of £170,294 relates to ‘Other sales’. It has been

posted by Tanya Potts who posts only invoices for ‘Other sales’.

Although the brought forward accrued income receivable appears to have been correctly

reversed, apart from the specific contract identified by the audit assistant in relation to Contract

sales, there is no other entry for accrued income for other sales or exhibition sales in the year

ended 31.12.2018 - the balance on account code 22200 (Accrued income) is zero – it is unusual

that there would not be accrued income for Other sales and Exhibition sales for 2018 and this

should be confirmed with Elephant’s management. (There is a small sales accrual included in the

accruals for £5,987 SRC006968 – I would need to confirm whether this is in the correct account

code and whether it should be included in 22200 Accrued income.)

Key audit risk Revenue may be understated due to invoices being recorded in a different period from the performance obligation being satisfied (cut off risk).

Intra year (month by month) comparisons of Income (Domestic and Overseas) and direct

payroll accounts

Intra year comparisons can be made for Income (Domestic and Overseas) and direct payroll accounts using Explore module, Account view, to highlight movements between months in the relevant accounts. Comparisons between income and payroll are however weak. This is because income is largely recognised on contract completion, but payroll is recognised as incurred. Nevertheless, some peaks in income, such as September 2018, can be identified and highlighted to make inquiries of management. Similarly, January 2018 is a low month for income, which requires explanation from management.

Key audit risk Revenue may be over or understated due to invoices being recorded in a different period from the performance obligation being satisfied (cut off risk).

➢ Comparison of revenue by Account 51010 (Domestic Sales) and Account 51020

(Overseas Sales).

Domesti

c

Overs

eas

2018 1,842 931

2017 1,840 789


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% increase 0% 18%

Domestic sales have not changed significantly compared with 2017 (2017: £1840k; 2018: £1842k after taking the above £170k into account). However, Overseas sales have increased by 18% (see DAS also calculated as ((£931k - £789k)/ £789k) x 100%). Examining the DAS for large transactions in Account code 51020 shows a large sale recorded by Frank Wright in December 2018 SRC 006973 deposit on brand management contract with Spooks £100,000. This can be identified either by using the Stacked Bar Chart with the primary variable as Effective period, and secondary variable as Users or by using the Detect module in DAS – (using Large Value).

Key audit risk There is an audit risk that revenue relating to this contract may be overstated as recognising a deposit is unlikely to satisfy the performance obligations under IFRS 15 – more information should be obtained from management.

➢ Sales mix - Comparison by revenue stream and geographical regions

Sales mix by revenue stream and by geographical

region

Contract

sales

Exhibition

sales

Other

sales Total

Domestic sales % % % %

2018 54% 23% 23% 100%

2017 27% 22% 51% 100%

Overseas sales

2018 51% 16% 33% 100%

2017 52% 9% 39% 100%


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2018 Total 53% 20% 27% 100%

2017 Total 35% 18% 47% 100%

Analysis and other information Contract sales 53% of revenue for 2018 is derived from contract sales compared with 35% for 2017. During the year a new manager, Jenny Hines, was recruited. The audit assistant has identified an issue with an adjustment for accrued income for £300,000 which is recorded in account code 54800 other income and 23404 prepayments control. This adjustment has not been included in the above analysis as it appears to be incorrect – see discussion below. However, the new manager may have negotiated other similar contracts and therefore they may be other contracts which have been correctly recognised. This should be confirmed by making inquiries of Elephant’s management and performing audit procedures on specific contracts. The new manager has told Andrea, an accounts assistant to post this large transaction - Jenny does not appear to have detailed financial reporting knowledge of IFRS 15.

Key audit risks There is an audit risk that revenue may be incorrectly recognised for Contract sales as other transactions may be incorrectly recorded. There is a key risk of lack of internal control over the authorising of the recognition of large transactions (see section 2 above).

➢ Payroll costs as a percentage of revenue

Direct Payroll costs %

of revenue

Contract

sales

Exhibition

sales

Other

sales Total

2018 29% 28% 62% 38%

2017 45% 31% 39% 40%


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Analysis and information

Overall direct payroll cost as a percentage of revenue has fallen to 38% from 40% for 2017. There are some variations between the income streams - Contract sales % have fallen to 29% and Other sales to 62% which suggests that the method of allocating studio salaries based on the same method as 2017 may not be applicable to 2018. Further information is needed to determine whether this gives rise to any further audit risks.

Using the Metrics module in DAS (‘Salaries and Employees’ routine), which calculates Financial Information based on the total payroll costs (‘Salary as a % of income’) – the decrease in direct payroll is in line with the overall fall for the ratio payroll/ income, which has fallen from 47.5% to 43.3%.

➢ Average salary (including NI) compared with 2017

2018 2017

Average

salary

2018

Average

salary

2017

No. No. £000 £000

Studio 20 20 33 31

Fitting 2 1 15 19

Sales 12 10 30 39

34 31 31 30

Revenue per

employee

£81.56k

£84.81k


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Key audit risk

The average salary for sales staff has decreased – this could be because a more experienced member of staff has left and been replaced by a more junior member – this would substantiate also why the average revenue per employee has fallen. More information should be obtained from management about changes in employees (leavers and joiners) and salary increases during the year.

Specific transactions in the data analytics software where they represent items of significant audit interest.

The specific transaction SCR 006974 £170,294 and SRC 006975 £300,000 and SRC 006973 deposit on brand management contract with Spooks £100,000 are discussed. These are key transactions because they are clearly above materiality and are discussed in detail above.

Other transactions of audit interest which would also be given credit could include:

Transaction ID

Description

Credit Account codes

Effective date

User ids

61348 Correct Q1 sales

15,000 51010 – 990 (suspense)

31.3.2018 FWright


27,000 51010 – 990 (suspense)

30.6.2018 FWright


33,333 51010 – 990 (suspense)

30.9.2018 FWright

The debit entry to these credits to 51010 are taken to the suspense account. For each amount there are three journals which debit 13025 – office depreciation and credit 990 suspense – These transactions are of audit interest because they appear to inflate revenue by a debit to office equipment depreciation. Frank Wright should be challenged about the validity of these transactions and whether they should be reversed. This would reduce revenue and profit by £75,000 which is in excess of materiality.

(4) For the audit matter identified by the audit assistant (Exhibit 2):

• Set out and explain the financial reporting treatment in Elephant’s financial

statements for the year ended 31 December 2018. Include relevant journal entries.

• Set out key audit procedures that Smith & Ives should perform.

Financial reporting treatment of the receivables loss allowance The total amount outstanding on this contract comprises of the following three invoices which I have identified in the DAS:


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Amount in

receivables Amount in revenue

Effective date

Description Due date

SIN18405 37,200 31,000 28/1/2018 To produce switched back video part 1

28/2/2018

SIN 19262 39,127 32,606 21/9/2018 To design build and deliver exhibition stand

19/10/2018

SIN 19347 26,304 21,920 30/9/2018 2000 boxed kits

28/10/2018

The invoices are now overdue and there is clear evidence that there is a need for an impairment allowance for this receivable as MonaHomes has informed Elephant of its financial difficulties.

Using Elephant’s predetermined matrix this would suggest the following impairment loss allowance is required:

£ Days

overdue Expected impairment loss allowance

Impairment loss

£

SIN18405 31,000 90+ 25% 7,750

SIN 19262 32,606 61 to 90 20% 6,521

SIN 19347 21,920 61 to 90 20% 4,384

18,655

£

Debit bad debt - profit or loss 18,655

Credit Bad debt allowance - SOFP 18,655

However, there may be a need for a specific allowance against the entire balance once the extent of MonaHomes financial difficulties is established.

Financial reporting implications of the court case

IAS 37 states that a provision should be recognised in the accounts if:

• an entity has a present obligation (legal or constructive) as a result of a past event;

• a transfer of economic benefits will probably be required to settle the obligation; and

• a reliable estimate can be made of the amount of the obligation.


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Elephant has also been informed that the injured visitors have appointed a legal team and a court case has commenced against Elephant. the commencement of the court case creates a present obligation from a past event.

The claim for damages of £100,000 has been estimated by Elephant’s legal team has said that, at 31 December 2018, and given that there is an 80% proability that Elephant will be found negligible, this represents a probaly outflow of economic benefits.

The provision that should be estabilshed should be most likely outcome which the legal team estimates is the highest amount it would reasonably be expected to pay as settlement - £60,000. As the ourt case is expected to be settled by January 2021 – the provision should be discounted using an annual discount rate of 8% = £51,440.

Journal required: £

Debit Expenses - profit or loss 51,440

Credit Provisions - SOFP 51,440

This is a significant transaction and exceeds materiality and therefore should be adjusted in the financial statements.

Other provisions may also be required – for example for legal costs. Also, the potential for Elephant to recover the costs from insurance cover – it would seem unlikely that Elephant would not have commercial insurance to cover potential claims of this nature.

Key audit procedures

Receivables allowance

• Agree the invoices to source documentation and confirm that ageing is appropriately calculated.

• Confirm that no cash has received after the year end to year-end balance

• Review historical data for write-offs and whether that can be to MonaHomes.

• Document and understand client's procedures for identifying any other allowances required against receivables

• Obtain confirmation of the outstanding balance from MonaHomes

• Review minutes of board meetings and other correspondence to obtain understanding of the recoverability of the balance.

• Inspect any correspondence with MonaHomes directly regarding the legal claims made against it and the ability of MonaHomes to pay any claim (eg, whether they have insurance cover).


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APPENDIX TO THE ANSWER

The following section explains the DAS screens used and the navigation methods but is not

itself part of the answer. (Note: the DAS screens cannot be cut and pasted from the software

into your answer in the Corporate Reporting exam).

Analysis of three income streams by using Users’ responsibilitiies

The key skill is to assimilate the total for each income stream by adding the totals for the

postings by the relevant Users for each income stream. To do this:

Go into Explore module

Go into ‘Account View’

Select ‘Income’ (on top row)

Select green ticks for:

• Account 51010 (Domestic Income)

and then

• Account 51020 (Overseas Income)

Select Stacked Bar Chart (with ‘Users’ for both the Primary and Secondary variables). This

gives the diagrams below.

Account 51010 (Domestic Income only)


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Enter the figures on the coloured blocks above, into the table below (which links the users

to the income streams from the information given in the question).

Domestic income streams

Contract Exhibition Other Total

£000 £000 £000 £000

Frank Wright 821

Emma Davids 166

Jo Smith

423

Tanya Potts

211

Andrea Bloggs

391

Total 987 423 602 2,012

Account 51020 (Overseas Income only)


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Overseas income streams

Contract Exhibition Other Total

£000 £000 £000 £000

Frank Wright 437

Emma Davids 37

Jo Smith

148

Tanya Potts

122

Andrea Bloggs

187

Total 474 148 309 931

Total (Domestic and Overseas Income)

The total of account 51010 (Domestic Income) and 51020 (Overseas Income) gives the

following:


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Total income streams

(Domestic and Overseas) Contract Exhibition Other Total

£000 £000 £000 £000

Frank Wright 1,258

Emma Davids 203

Jo Smith

571

Tanya Potts

333

Andrea Bloggs

577

Total 1,461 571 910 2,942

Note:

• there are rounding errors.

• the figures are before adjustments in the question.

Intra year (month by month) comparisons of Income (Domestic and Overseas) and

direct payroll accounts

Intra year comparisons can be made for Income (Domestic and Overseas) and direct payroll

accounts using Explore module, Account view, to highlight movements between months in

the relevant accounts.


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Comparisons between income and payroll are however weak. This is because income is

largely recognised on contract completion, but payroll is recognised as incurred.

Nevertheless, some peaks in income, such as September 2018, can be identified and

highlighted to make inquiries of management. Similarly, January 2018 is a low month for

income, which requires explanation from management.

(3) For the new internal control (Exhibit 1),

• use the Data Analytics Software to evaluate whether the control has been

applied effectively in December 2018.

• identify any evidence where the new internal control has not been

appropriately applied and set out relevant audit procedures relating to this

internal control deficiency.

New internal Control

Use the Detect module, with the ‘Large Value’ function. Use the small arrow on the left to

select ‘Visualise’ as follows:


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Click on December 2018 transactions column (circled above):

Search for transactions over £100,000 posted by the three accounts assistants (Tanya,

Andrea, Emma)

This investigation reveals three transactions equal to, or in excess of £100,000, posted by

accounts assistants in December 2018. These are as follows:


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Click on the blue Transaction ID to identify relevant entries for each large posting identified,

as follows:


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Requirement 4 – Audit matter (Exhibit 2)

For the audit matter identified by the audit assistant (Exhibit 2):

• Set out and explain the financial reporting treatment in Elephant’s financial

statements for the year ended 31 December 2018. Include relevant journal entries.

• Set out key audit procedures that Smith & Ives should perform.

The transaction relates to income, so:

Go into Explore module

Go into ‘Account View’

Select ‘Income’ (on top row)

Select green ticks for:

• Account 51010 (Domestic Income)

and then

• Account 51020 (Overseas Income)

Select transactions icon

Use filter icon (top right) to filter by the month of the transaction given in the question.

Use the transaction ID (which are in numerical order) to search for the transaction.

Click on the blue transaction ID number to show the double entry for each of the three

transactions (see below):

Part one - Inv 18405 January 2018 £31,000

To produce Switched Back video part 1


of 29

Part two - Inv 19262 September 2018 £32,606

Design, build and deliver exhibition stand

Part three - Inv 19347 September 2018 £21,920

2,000 boxed kits

data analytics software in the corporate reporting exam

Documents