(d) Explain to the management of Bailey’s why consideration should be given to resolving the problems through:(i) job rotation; (5 marks)

正确答案：
(d) Job rotation is an important training method and is often also seen as a means of motivation. It involves moving the trainee from one job to another and is therefore more suitable for lower level employees. The trainee is required to do different jobs in logical succession, thus broadening experience and gaining a picture of the organisation’s wider activities.

正确答案：
(e) There are issues at Bailey’s as a consequence of poor pay. Although non-financial motivation has an important role to play in encouraging commitment, the fact remains that financial rewards act as a strong motivating factor, especially in what has been a low pay business. Financial rewards are all encompassing and apply to all employees at all levels, are universally applicable, able to satisfy all types of need and simple to apply and understand. At Bailey’s, financial rewards have a greater effect because they can provide recognition and prestige if pay is improved, are seen as the most important hygiene factor(especially in a business with a history of low pay and low morale) and are a measure of achievement against goals, especially if some form. of bonus or performance related pay is introduced by the new management at Bailey’s. In addition, financial rewards are a basis for satisfaction and are often used as a form. of professional or social comparison outside the organisation.

正确答案：
Embedded risk
Risk awareness is the knowledge of the nature, hazards and probabilities of risk in given situations. Whilst management will
typically be more aware than others in the organisation of many risks, it is important to embed awareness at all levels so as
to reduce the costs of risk to an organisation and its members (which might be measured in financial or non-financial terms).
In practical terms, embedding means introducing a taken-for-grantedness of risk awareness into the culture of an organisation
and its internal systems. Culture, defined in Handy’s terms as ‘the way we do things round here’ underpins all risk
management activity as it defines attitudes, actions and beliefs.
The embedding of risk awareness into culture and systems involves introducing risk controls into the process of work and the
environment in which it takes place. Risk awareness and risk mitigation become as much a part of a process as the process
itself so that people assume such measures to be non-negotiable components of their work experience. In such organisational
cultures, risk management is unquestioned, taken for granted, built into the corporate mission and culture and may be used
as part of the reward system.
Tutorial note: other meaningful definitions of culture in an organisational context are equally acceptable.

正确答案：
(c) Retirement by rotation.
Definition
Retirement by rotation is an arrangement in a director’s contract that specifies his or her contract to be limited to a specific
period (typically three years) after which he or she must retire from the board or offer himself (being eligible) for re-election.
The director must be actively re-elected back onto the board to serve another term. The default is that the director retires
unless re-elected.
Importance of
Retirement by rotation reduces the cost of contract termination for underperforming directors. They can simply not be
re-elected after their term of office expires and they will be required to leave the service of the board as a retiree (depending
on contract terms).
It encourages directors’ performance (they know they are assessed by shareholders and reconsidered every three years) and
focuses their minds upon the importance of meeting objectives in line with shareholders’ aims.
It is an opportunity, over time, to replace the board membership whilst maintaining medium term stability of membership
(one or two at a time).
Applied to Rosh
Retirement by rotation would enable the board of Rosh to be changed over time. There is evidence that some directors may
have stayed longer than is ideal because of links with other board members going back many years.

正确答案：

正确答案：
(c) The benefits of an activity-based system as the basis for product cost/profit estimation may not be straightforward. A number
of problems may be identified.
The selection of relevant activities and cost drivers may be complicated where there are many activities and cost drivers in
complex business situations.
There may be difficulty in the collection of data to enable accurate cost driver rates to be calculated. This is also likely to
require an extensive data collection and analysis system.
The problem of ‘cost driver denominator level’ may also prove difficult. This is similar to the problem in a traditional volume
related system. This is linked to the problem of fixed/variable cost analysis. For example the cost per batch may be fixed. Its
impact may be reduced, however, where the batch size can be increased without a proportionate increase in cost.
The achievement of the required level of management skill and commitment to change may also detract from the
implementation of the new system. Management may feel that the activity based approach contains too many assumptions
and estimates about activities and cost drivers. There may be doubt as to the degree of increased accuracy which it provides.
(alternative relevant examples and discussion would be acceptable)

正确答案：
(b) The advantage of Hira Ltd not claiming any capital allowances
In the year ending 31 March 2007 Hira Ltd expects to make a tax adjusted trading loss, before deduction of capital
allowances, of ￡55,000 and to surrender the maximum amount possible of trading losses to Belgrove Ltd and Dovedale Ltd.
For the first nine months of the year from 1 April 2006 to 31 December 2006 Hira Ltd is in a loss relief group with Belgrove
Ltd. The maximum surrender to Belgrove Ltd for this period is the lower of:
– the available loss of ￡41,250 (￡55,000 x 9/12); and
– the profits chargeable to corporation tax of Belgrove of ￡28,500 (￡38,000 x 9/12).
i.e. ￡28,500. This leaves losses of ￡12,750 (￡41,250 – ￡28,500) unrelieved.
For the remaining three months from 1 January 2007 to 31 March 2007 Hira Ltd is a consortium company because at least
75% of its share capital is owned by companies, each of which own at least 5%. It can surrender ￡8,938 (￡55,000 x 3/12
x 65%) to Dovedale Ltd and ￡4,812 (￡55,000 x 3/12 x 35%) to Belgrove Ltd as both companies have sufficient taxable
profits to offset the losses. Accordingly, there are no losses remaining from the three-month period.
The unrelieved losses from the first nine months must be carried forward as Hira Ltd has no income or gains in that year or
the previous year. However, the losses cannot be carried forward beyond 1 January 2007 (the date of the change of
ownership of Hira Ltd) if there is a major change in the nature or conduct of the trade of Hira Ltd. Even if the losses can be
carried forward, the earliest year in which they can be relieved is the year ending 31 March 2009 as Hira Ltd is expected to
make a trading loss in the year ending 31 March 2008.
Any capital allowances claimed by Hira Ltd in the year ending 31 March 2007 would increase the tax adjusted trading loss
for that year and consequently the unrelieved losses arising in the first nine months.
If the capital allowances are not claimed, the whole of the tax written down value brought forward of ￡96,000 would be
carried forward to the year ending 31 March 2008 thus increasing the capital allowances and the tax adjusted trading loss,
for that year. By not claiming any capital allowances, Hira Ltd can effectively transfer a current period trading loss, which
would be created by capital allowances, of ￡24,000 (25% x ￡96,000) from the year ending 31 March 2007 to the following
year where it can be surrendered to the two consortium members.

正确答案：
(c) Specific inquiries – accounting for construction contracts
Tutorial note: This answer is illustrative of the types of inquiry that should be made. Other relevant answer points will be
awarded similar credit. For each full mark to be earned an inquiry should address the specifics of Robson (e.g. that its
accounting policies are ‘generally less prudent’). The identification of asset overstatement/liability understatement may
reduce the purchase price offered by Prescott.
■ Are any constructions being undertaken without signed contracts?
Tutorial note: Any expenditure on constructions without contracts (e.g. of a speculative nature, perhaps to keep the
workforce employed) must be accounted for under IAS ‘Inventories’; revenue cannot be recognised nor profit taken.
■ Is full provision made for future losses foreseen on loss-making contracts?
Tutorial note: The information in the brief is that ‘provisions are made’. The level of provision is not indicated and
could be less than full.
■ Which contracts started during the year are likely to be/have been identified as loss-making (for which no provision has
yet been made)?
Tutorial note: Profits and losses are only determined by contract at each financial year end.
■ What are management’s assumptions and judgments on the likely future outcome on the Sarwar contract (and other
actual and contingent liabilities)?
Tutorial note: Robson would be imprudent if it underestimates the probability of an unfavourable outcome (or
overestimates the likelihood of successful recourse).
■ What claims history has Robson experienced? (What proportion of contracts have been subject to claims? What
proportion of claims brought have been successful? How have they been settled? Under insurance? Out-of-court
settlement?) How effective are the penalty clauses? (Is Robson having to pay penalties for overrunning on contracts?)
■ What are the actual useful lives of assets used in construction? What level of losses are made on disposal?
Tutorial note: If such assets are depreciated over useful lives that are estimated to be too long, depreciation costs
incurred to date (and estimated depreciation to be included in costs to completion) will be understated. This will result
in too much profit/too little loss being calculated on contracts.
■ What is the cause of losses on contracts? For example, if due to theft of building supplies Robson’s management is not
exercising sufficient control over the company’s assets.

正确答案：
(b) Matters to be considered
Tutorial note: Candidates at this level must appreciate that the matters to be considered when planning the nature and
scope of the examination are not the same matters to be considered when deciding whether or not to accept an
engagement. The scenario clearly indicates that the assignment is being undertaken by the current auditor rendering any
‘pre-engagement’/‘professional etiquette’ considerations irrelevant to answering this question.
This PFI has been prepared to show an external user, the bank, the financial consequences of Cusiter’s plans to help the bank
in making an investment decision. If Cusiter is successful in its loan application the PFI provides a management tool against
which the results of investing in the plant and equipment can be measured.
The PFI is unpublished rather than published. That is, it is prepared at the specific request of a third party, the bank. It will
not be published to users of financial information in general.
The auditor’s report on the PFI will provide only negative assurance as to whether the assumptions provide a reasonable basis
for the PFI and an opinion whether the PFI is:
■ properly prepared on the basis of the assumptions; and
■ presented in accordance with the relevant financial reporting framework.
The nature of the engagement is an examination to obtain evidence concerning:
■ the reasonableness and consistency of assumptions made;
■ proper preparation (on the basis of stated assumptions); and
■ consistent presentation (with historical financial statements, using appropriate accounting principles).
Such an examination is likely to take the form. of inquiry, analytical procedures and corroboration.
The period of time covered by the prospective financial information is two years. The assumptions for 2008 are likely to be
more speculative than for 2007, particularly in relation to the impact on earnings, etc of the investment in new plant and
equipment.
The forecast for the year to 31 December 2007 includes an element of historical financial information (because only part of
this period is in the future) hence actual evidence should be available to verify the first three months of the forecast (possibly
more since another three-month period will expire at the end of the month).
Cusiter management’s previous experience in preparing PFI will be relevant. For example, in making accounting estimates
(e.g. for provisions, impairment losses, etc) or preparing cash flow forecasts (e.g. in support of the going concern assertion).
The basis of preparation of the forecast. For example, the extent to which it comprises:
■ proforma financial information (i.e. historical financial information adjusted for the effects of the planned loan and capital
expenditure transaction);
■ new information and assumptions about future performance (e.g. the operating capacity of the new equipment, sales
generated, etc).
The nature and scope of any standards/guidelines under which the PFI has been prepared is likely to assist the auditor in
discharging their responsibilities to report on it. Also, ISAE 3400 The Examination of Prospective Financial Information,
establishes standards and provides guidance on engagements to examine and report on PFI including examination
procedures.
The planned nature and scope of the examination is likely to take into account the time and fee budgets for the assignments
as adjusted for any ‘overlap’ with audit work. For example, the examination of the PFI is likely to draw on the auditor’s
knowledge of the business obtained in auditing the financial statements to 31 December 2006. Analytical procedures carried
out in respect of the PFI may provide evidence relevant to the 31 December 2007 audit.

正确答案：
(b) (i) Cost of investment on acquisition of Dylan Co
Matters to consider
According to the schedule provided by the client, the cost of investment comprises three elements. One matter to
consider is whether the cost of investment is complete.
It appears that no legal or professional fees have been included in the cost of investment (unless included within the
heading ‘cash consideration’). Directly attributable costs should be included per IFRS 3 Business Combinations, and
there is a risk that these costs may be expensed in error, leading to understatement of the investment.
The cash consideration of $2·5 million is the least problematical component. The only matter to consider is whether the
cash has actually been paid. Given that Dylan Co was acquired in the last month of the financial year it is possible that
the amount had not been paid before the year end, in which case the amount should be recognised as a current liability
on the statement of financial position (balance sheet). However, this seems unlikely given that normally control of an
acquired company only passes to the acquirer on cash payment.
IFRS 3 states that the cost of investment should be recognised at fair value, which means that deferred consideration
should be discounted to present value at the date of acquisition. If the consideration payable on 31 January 2009 has
not been discounted, the cost of investment, and the corresponding liability, will be overstated. It is possible that the
impact of discounting the $1·5 million payable one year after acquisition would be immaterial to the financial
statements, in which case it would be acceptable to leave the consideration at face value within the cost of investment.
Contingent consideration should be accrued if it is probable to be paid. Here the amount is payable if revenue growth
targets are achieved over the next four years. The auditor must therefore assess the probability of the targets being
achieved, using forecasts and projections of Maxwell Co’s revenue. Such information is inherently subjective, and could
have been manipulated, if prepared by the vendor of Maxwell Co, in order to secure the deal and maximise
consideration. Here it will be crucial to be sceptical when reviewing the forecasts, and the assumptions underlying the
data. The management of Rosie Co should have reached their own opinion on the probability of paying the contingent
consideration, but they may have relied heavily on information provided at the time of the acquisition.
Audit evidence
– Agreement of the monetary value and payment dates of the consideration per the client schedule to legal
documentation signed by vendor and acquirer.
– Agreement of $2·5 million paid to Rosie Co’s bank statement and cash book prior to year end. If payment occurs
after year end confirm that a current liability is recognised on the individual company and consolidated statement
of financial position (balance sheet).
– Board minutes approving the payment.
– Recomputation of discounting calculations applied to deferred and contingent consideration.
– Agreement that the discount rate used is pre-tax, and reflects current market assessment of the time value of money
(e.g. by comparison to Rosie Co’s weighted average cost of capital).
– Revenue and profit projections for the period until January 2012, checked for arithmetic accuracy.
– A review of assumptions used in the projections, and agreement that the assumptions are comparable with the
auditor’s understanding of Dylan Co’s business.
Tutorial note: As the scenario states that Chien & Co has audited Dylan Co for several years, it is reasonable to rely on
their cumulative knowledge and understanding of the business in auditing the revenue projections.

正确答案：
(c) For Bailey’s the advantages of counselling as a means of understanding and addressing the problems are that it provides a confidential service to the employee to discuss problems away from and not involving management or supervision. There is no obvious human resources policy at Bailey’s and counselling provides an opportunity to develop an appropriate policy from understanding individual problems.
This in turn will demonstrate organisational commitment to the employees that has been lacking in the past at Bailey’s and begin the process of better performance and increase in commitment.
At another level, counselling can provide a link to other external agencies to assist with personal problems that may be deemed too specific for resolution within Bailey’s.

正确答案：
(b) Douglas McGregor has suggested that the managers’ view of the individuals’ attitude to work can be divided into two categories, which he called Theory X and Theory Y. The style. of management adopted will stem from the view taken as to how subordinates behave. However, these two typologies are not distinct; they do in fact represent the two ends of a continuum.
(i) Theory X is based on traditional organisational thinking. It assumes that the average person is basically indolent and has an inherent dislike of work which should be avoided at all costs. The individual lacks ambition, shuns responsibility, has no ambition and is resistant to change. This theory holds that the individual seeks only security and is driven solely by self-interest. It follows that because of this dislike of work, most have to be directed, controlled, organised or coerced. Management is based on fear and punishment and will have an exploitative or authoritarian style. This reflects the thinking of the classical school of management, based on a scientific approach, specialisation, standardisation and obedience to superiors.

正确答案：
(c) Market risk
Definition of market risk
Market risks are those arising from any of the markets that a company operates in. Most common examples are those risks
from resource markets (inputs), product markets (outputs) or capital markets (finance).
[Tutorial note: markers should exercise latitude in allowing definitions of market risk. IFRS 7, for example, offers a technical
definition: ‘Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in
market prices. Market risk reflects interest rate risk, currency risk, and other price risks’.]
Why non-compliance increases market risk
The lack of a fully compliant committee structure (such as having a non-compliant audit committee) erodes investor
confidence in the general governance of a company. This will, over time, affect share price and hence company value. Low
company value will threaten existing management (possibly with good cause in the case of Gluck and Goodman) and make
the company a possible takeover target. It will also adversely affect price-earnings and hence market confidence in Gluck and
Goodman’s shares. This will make it more difficult to raise funds from the stock market.

正确答案：
(d) Environmental management accounting (EMA) involves the generation and analysis of both financial and non-financial
information in order to support internal environmental management processes. It is complementary to the conventional
management accounting approach, with the aim to develop appropriate mechanisms that assist the management of
organisations in the identification and allocation of environmentally related costs.
Organisations that alter their management accounting practices to incorporate environmental concerns will have greater
awareness of the impact of environment-related activities on their profit and loss accounts and balance sheets. This is because
conventional management accounting systems tend to attribute many environmental costs to general overhead accounts with
the result that they are ‘hidden’ from management. It follows that organisations which adopt EMA are more likely to identify
and take advantage of cost reduction and other improvement opportunities. A concern with environmental costs will also
reduce the chances of employing incorrect pricing of products and services and taking the wrong options in terms of mix and
development decisions. This in turn may lead to enhanced customer value whilst reducing the risk profile attaching to
investments and other decisions which have long term consequences.
Reputational risk will also be reduced as a consequence of adopting (EMA) since management will be seen to be acting in
an environmentally responsible manner. Organisations can learn from the Shell Oil Company whose experience in the much
publicised Brent Spar incident cost the firm millions in terms of lost revenues as a result of a consumer boycott.

正确答案：
(c) The introduction of ERPS has the potential to have a significant impact on the work of management accountants. The use of
ERPS causes a substantial reduction in the gathering and processing of routine information by management accountants.
Instead of relying on management accountants to provide them with information, managers are able to access the system to
obtain the information they require directly via a suitable electronic access medium.
ERPS integrate separate business functions in one system for the entire organisation and therefore co-ordination is usually
undertaken centrally by information management specialists who have a dual responsibility for the implementation and
operation of the system.
ERPS perform. routine tasks that not so long ago were seen as an essential part of the daily routines of management
accountants, for example perpetual inventory valuation. Therefore if the value of the role of management accountants is not
to be diminished then it is of necessity that management accountants should seek to expand their roles within their
organisations.
The management accountant will also control and audit the ERPS data input and analysis. Hence the implementation of ERPS
provides the management accountant with an opportunity to change the emphasis of their role from information gathering
and processing to that of the role of advisers and internal consultants to their organisations. This new role will require
management accountants to be involved in interpreting the information generated from the ERPS and to provide business
support for all levels of management within an organisation.

正确答案：
(c) (i) Paper for paper rules
The proposed transaction broadly falls under the ‘paper for paper’ rules. Where this is the case, chargeable gains do not
arise. Instead, the new holding stands in the shoes (and inherits the base cost) of the original holding.
The company issuing the new shares must:
(i) end up with more than 25% of the ordinary share capital (or a majority of the voting power) of the old company,
OR
(ii) make a general offer to shareholders in the other company with a condition that, if satisfied, would give the
acquiring company control of the other company.
The exchange must be for bona fide commercial reasons and must not have as its main purpose (or one of its main
purposes) the avoidance of CGT or corporation tax. The acquiring company can obtain advance clearance from the
Inland Revenue that the conditions will be met.
If part of the offer consideration is in the form. of cash, a gain must be calculated using the part disposal rules. If the
cash received is not more than the higher of ￡3,000 or 5% of the total value on takeover, then the amount received in
cash can be deducted from the base cost of the securities under the small distribution rules.

正确答案：
(b) Recoverability of input tax
Sales by Nikau Ltd of its existing products are subject to UK VAT at 17·5% because it is selling to domestic customers who
will not be registered for VAT. Accordingly, at present, Nikau Ltd can recover all of its input tax.
Sales to customers in North America will be zero rated because the goods are being exported from the EU. Zero rated supplies
are classified as taxable for the purposes of VAT and therefore Nikau Ltd will continue to be able to recover all of its input tax.

正确答案：
4 CLEEVES CO
(a) Reporting non-compliance
Non-compliance refers to acts of omission or commission by the entity being audited, either intentional or unintentional, that
are contrary to the prevailing laws or regulations.
To management
Regarding non-compliance that comes to the auditor’s attention the auditor should, as soon as practicable, either:
■ communicate with those charged with governance; or
■ obtain audit evidence that they are appropriately informed.
However, the auditor need not do so for matters that are clearly inconsequential or trivial and may reach agreement1 in
advance on the nature of such matters to be communicated.
If in the auditor’s judgment the non-compliance is believed to be intentional and material, the auditor should communicate
the finding without delay.
If the auditor suspects that members of senior management are involved in non-compliance, the auditor should report the
matter to the next higher level of authority at the entity, if it exists (e.g. an audit committee or a supervisory board). Where
no higher authority exists, or if the auditor believes that the report may not be acted upon or is unsure as to the person to
whom to report, the auditor would consider seeking legal advice.
To the users of the auditor’s report on the financial statements
If the auditor concludes that the non-compliance has a material effect on the financial statements, and has not been properly
reflected in the financial statements, the auditor expresses a qualified (i.e. ‘except for disagreement’) or an adverse opinion.
If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to evaluate whether or not noncompliance
that may be material to the financial statements has (or is likely to have) occurred, the auditor should express a
qualified opinion or a disclaimer of opinion on the financial statements on the basis of a limitation on the scope of the audit.
Tutorial note: For example, if management denies the auditor access to information from which he would be able to assess
whether or not illegal dumping had taken place (and, if so, the extent of it).
If the auditor is unable to determine whether non-compliance has occurred because of limitations imposed by circumstances
rather than by the entity, the auditor should consider the effect on the auditor’s report.
Tutorial note: For example, if new legal requirements have been announced as effective but the detailed regulations are not
yet published.
To regulatory and enforcement authorities
The auditor’s duty of confidentiality ordinarily precludes reporting non-compliance to a third party. However, in certain
circumstances, that duty of confidentiality is overridden by statute, law or by courts of law (e.g. in some countries the auditor
is required to report non-compliance by financial institutions to the supervisory authorities). The auditor may need to seek
legal advice in such circumstances, giving due consideration to the auditor’s responsibility to the public interest.

正确答案：
(b) (i) Materiality
The net book value of capitalised development costs represent 7% of total assets in 2007 (2006 – 7·7%), and is
therefore material. The net book value has increased by 13%, a significant trend.
The costs capitalised during the year amount to $750,000. If it was found that the development cost had been
inappropriately capitalised, the cost should instead have been expensed. This would reduce profit before tax by
$750,000, representing 42% of the year’s profit. This is highly material. It is therefore essential to gather sufficient
evidence to support the assertion that development costs should be recognised as an asset.
In 2007, $750,000 capitalised development costs have been incurred, when added to $160,000 research costs
expensed, total research and development costs are $910,000 which represents 20·2% of total revenue, again
indicating a high level of materiality for this class of transaction.
Relevant accounting standard
Development costs should only be capitalised as an intangible asset if the recognition criteria of IAS 38 Intangible Assets
have been demonstrated in full:
– Intention to complete the intangible asset and use or sell it
– Technical feasibility and ability to use or sell
– Ability to generate future economic benefit
– Availability of technical, financial and other resources to complete
– Ability to measure the expenditure attributable to the intangible asset.
Research costs must be expensed, as should development costs which do not comply with the above criteria. The
auditors must consider how Sci-Tech Co differentiates between research and development costs.
There is risk that not all of the criteria have been demonstrated, especially due to the subjective nature of the
development itself:
– Pharmaceutical development is highly regulated. If the government does not license the product then the product
cannot be sold, and economic benefits will therefore not be received.
– Market research should justify the commercial viability of the product. The launch of a rival product to Flortex
means that market share is likely to be much lower than anticipated, and the ability to sell Flortex is reduced. This
could mean that Flortex will not generate an overall economic benefit if future sales will not recover the research
and development costs already suffered, and yet to be suffered, prior to launch. The existence of the rival product
could indicate that Flortex is no longer commercially viable, in which case the capitalised development costs
relating to Flortex should be immediately expensed.
– The funding on which development is dependent may be withdrawn, indicating that there are not adequate
resources to complete the development of the products. Sci-Tech has failed to meet one of its required key
performance indicators (KPI) in the year ended 30 November 2007, as products valued at 0·8% revenue have
been donated to charity, whereas the required KPI is 1% revenue.
Given that there is currently a breach of the target KPIs, this is likely to result in funding equivalent to 25% of
research and development expenditure being withdrawn. If Sci-Tech Co is unable to source alternative means of
finance, then it would seem that adequate resources may not be available to complete the development of new
products.

正确答案：A

此题为推论题。在找工作的时候，我们不需要过于谦虚，特别是在这个竞争激烈的时代，自信比谦虚更重要，所以要表达出自己适合做这份工作。