You are the audit partner at Preston & Associates, a mid-tier audit firm. You are responsible for the audits of the following three independent entities for the year ended 30 June 2022

The purpose of the practice questions is to assist you to be familiar with the type of questions
and the structure of the exam. You are expected to use these practice questions as part of
your subject review and exam preparation. The practice questions should NOT be used as the
only source of reference for the exam preparation.
Your best form of revision is the pre-class and in-class questions supported by the lecture
material.
The final exam comprises six application questions. Each question is worth ten marks.
2
Q1. You are the audit partner at Preston & Associates, a mid-tier audit firm. You are
responsible for the audits of the following three independent entities for the year
ended 30 June 2022.
(a) Helping Hand Ltd is a non-profit entity. You have discovered that it has not kept
substantiating vouchers or receipts for more than 65 per cent of its expenses,
excluding salaries and allowances.
(b) Skyscrapper Ltd is a building contractor with a varying workload. In order to
compensate for the irregularity of its contracted building projects, Skyscrapper also
purchases large vacant blocks of land that it later subdivides for the construction of
houses and units. Skyscrapper then sells these on its own account. Your analysis
strongly suggests that the apportionment of costs to houses and units sold has been
kept low in order to boost profits. In your opinion, this has resulted in the
overvaluation of the unsold properties. The directors of the company do not agree
and hold to their view that the stock of properties is correctly valued.
(c) Big Event Ltd arranges for popular overseas entertainment artists to perform in
Australia. The band Eclipse was booked by Big Event to play in major cities across the
country. Big Event’s written contract required the company to pay the band in US
dollars but, in order to reduce costs. It did not hedge the amounts. Subsequent to year
end, the Australian dollar fell against the US dollar and a substantial loss relating to
the band’s tour was predicted. The management of Big Event tried unsuccessfully to
renegotiate the band’s contract and has been unable to obtain finance to cover the
expected shortfall. Big Event has now cancelled the tour and expects a substantial
claim from Eclipse. It is clear to you, as the auditor, that Big Event does not have the
income, cash or other assets to sustain such a loss (assume the client has prepared a
general-purpose financial report).
(d) You are the auditor of PPK Limited (PPK). Due to recurring operating losses and
working capital deficiencies, the status of the PPK is extremely doubtful. However, the
financial statement disclosures concerning these matters are adequate.
Required:
Assuming that all amounts involved are material, identify and justify the most likely
auditor’s opinion that you would issue on each financial report for the year ending 30 June
2022.