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Brown Investments Ltd, is a company based in East London. It has a financial year end of 30 April.
At its annual general meeting (that took place in March 2023), the shareholders of Brown
Investments Ltd appointed Eagle-Eye Inc. as its external auditor. During the current audit of Brown
Investments Ltd.’s financial statements one of the audit team members discovered that taxable
income is understated by the Senior Accountant Mr. Hustler, due to a certain amount of the sales
having been fraudulently not recorded. Further investigations conducted pointed out that Mr. Hustler
deliberately failed to report output tax and he was also underreporting input tax.
Mr Hustler was also in the habit of underpaying tax as he thought the government was corrupt and
paying tax was a waste of valuable company resources, he opted to increase the salaries of his
employees as he felt it was the moral thing to do. The auditors felt that Mr. Hustler’s actions resulted
in material understating of the VAT liability that would have been paid to SARS.
a) Determine whether it is VAT avoidance or tax evasion that exists in the above case. Support
your answers by linking with practical examples motivating why the case constitute tax
evasion or VAT avoidance
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- You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for theaudits of the following four independent entities for the year ended 30 June 2018:(a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiatingvouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances(b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for theirregularity of its contracted building projects, JJ King also purchases large vacant blocks of landthat it later subdivides for the construction of houses and units. JJ King then sells these on its ownaccount. Your analysis strongly suggests that the apportionment of costs to houses and units soldhas been kept low to boost profits. In your opinion, this has resulted in the overvaluation of theunsold properties. The directors of the company do not agree and hold to their view that the stockof properties is…Ann Johnson has audited the financial report of Quick Ltd for the year ended 30 June 2020. Although Ann’s audit fieldwork was completed on 14 August 2020, her auditor’s report was signed on 20 August 2020 and sent to management that day. The management of Quick Ltd advised Ann that their annual report, which will be mailed to shareholders on 10 October 2020, will also include an unaudited financial report for the first quarter ended 30 September 2020. Under the circumstances, Ann is responsible for undertaking subsequent events audit procedures through to:Select one:a. 10 October 2020b. 20 August 2020c. 14 August 2020d. 30 September 2020You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2018:(a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances (b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King 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 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…
- You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2018:(a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances(b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King 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 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…While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: 1. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the…The XR Company’s Financial Year Ended on December 31, 2021. However, before the completion of the audit in February 2023 it was determined the company lost a case that was at court before the end of the financial year, but the outcome was uncertain. The auditor will disclosed this information as: a. An unusual occurrence b. A tax liability for the company c. A subsequent event. d. An annual expense
- While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: I. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. - DONE II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. DONE III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that…While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: I. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. Required:For each independent situation, state the type of audit report that you should issue and give reasons for…Oscar Wylee Women Glass Ltd is a supplier of fashion women sunglasses. The audit report for the year ended 30 June 2021 was signed on 8 August 2021, and the financial report was mailed to shareholders on 12 August. Requirement: Consider the following independent events. Assume that each event is material. For each of the individual misstatements listed, explain auditors' responsibility and consequence auditing report One of Oscar Wylee major customers, Phoenix Pty Ltd, suffered a fire on 23 July. Since Phoenix Pty Ltd was uninsured, it is unlikely that their accounts receivable balance will be paid. On 27 July, a well-known financial planner advised his clients not to invest in Oscar Wylee due to poor long-term growth prospects. The market price for Oscar Wylee Accessories' shares subsequently declined by 50%.
- Dibiasky Corporation is a trading company based in Laguna. The auditor in charge for 2020 audit is examining the company’s liabilities as part of their procedures. The following accounts as of December 31, 2020 are relevant in the tests being performed by the auditor: Accounts payable 1. The balance in the company’s accounts payable account as of December 31, 2020 is P600,000 and this was before any necessary year-end adjustments relating to the following: a) On December 31, 2020, the company has a P50,000 debit balance in its accounts payable to Mindy, a supplier, resulting from a P50,000 advance payment for goods ordered by the company. b) On December 28, 2020, the company purchased and received goods for P40,000, terms 2/10, n/30. The company records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2021. c) Goods were in transit to the company from a vendor on December 31, 2020. The invoice cost was P50,000. The goods were shipped f.o.b.…The XR Company's Financial Year Ended on December 31, 2021. However, before the completion of the audit in February 2023 it was determined the company lost a case that was at court before the end of the financial year, but the outcome was uncertain. The auditor will disclosed this information as: O a. A subsequent event. O b. An unusual occurrence O c. A tax liability for the company O d. An annual expenseDalston Limited was incorporated on 1 November 2018 as a limited liability company. but commenced business on 1 January 2019. It carries out general merchandise business. On 5 February 2020, your firm was appointed as the external auditors to audit the company’s accounts for the year ended 31 December 2019. The signed copy of the engagement letter has been received from the Managing Director. The audit team has gone to commence the audit assignment at the company. The job schedules have been assigned by the Audit Manager to the audit team members based on the Audit Planning Memorandum. The accounting system and internal controls were reviewed, and the audit completed within the time frame of two weeks. At the commencement of the audit the following accounting systems were recorded. (a). Income Recognition Income is recognised by the client based on the amount in the sales invoices issued for the goods supplied. The amounts of the sales orders are recognised as income for all…
