Using the information above:

　　（i） Calculate FIVE ratios,for BOTH years,which would assist the audit senior in planning the audit; and（5 marks）

　　（ii） From a review of the above information and the ratios calculated,explain the audit risks that arise and describe the appropriate response to these risks. （10 marks）

　　（20 marks）

　　4（a）Explain the purpose of a value for money audit. （4 marks）

　　（b）Bluesberry hospital is located in a country where healthcare is free,as the taxpayers fund the hospitals which are owned by the government.Two years ago management reviewed all aspects of hospital operations and instigated a number of measures aimed at improving overall 'value for money' for the local community.Management have asked that you,an audit manager in the hospital‘s internal audit department,perform a review over the measures which have been implemented.Bluesberry has one centralised buying department and all purchase requisition forms for medical supplies must be forwarded here.Upon receipt the buying team will research the lowest price from suppliers and a purchase order is raised.This is then passed to the purchasing director,who authorises all orders. The small buying team receive in excess of 200 forms a day.The human resources department has had difficulties with recruiting suitably trained staff.Overtime rates have been increased to incentivise permanent staff to fill staffing gaps,this has been popular,and reliance on expensive temporary staff has been reduced.Monitoring of staff hours had been difficult but the hospital has implemented time card clocking in and out procedures and these hours are used for overtime payments as well.The hospital has invested heavily in new surgical equipment,which although very expensive,has meant that more operations could be performed and patient recovery rates are faster. However, currently there is a shortage of appropriately trained medical staff.A capital expenditure committee has been established,made up of senior managers,and they plan and authorise any significant capital expenditure items.

　　Required:

　　（i）Identify and explain FOUR STRENGTHS within Bluesberry‘s operating environment;and （6 marks）

　　（ii）For each strength identified,describe how Bluesberry might make further improvements to provide the best value for money. （4 marks）

　　（c）Describe TWO substantive procedures the external auditor of Bluesberry should adopt to verify EACH of the following assertions in relation to an entity‘s property,plant and equipment;

　　（i）Valuation；

　　（ii）Completeness;and（iii）Rights and obligations.Note:Assume that the hospital adopts International Financial Reporting Standards. （6 marks）

　　（20 marks）

　　5 Greenfields Co specialises in manufacturing equipment which can help to reduce toxic emissions in the production of chemicals.The company has grown rapidly over the past eight years and this is due partly to the warranties that the company gives to its customers.It guarantees its products for five years and if problems arise in this period it undertakes to fix them,or provide a replacement product.

　　You are the manager responsible for the audit of Greenfields and you are performing the final review stage of the audit and have come across the following two issues.

　　Receivable balance owing from Yellowmix Co

　　Greenfields has a material receivable balance owing from its customer,Yellowmix Co.During the year-end audit, your team reviewed the ageing of this balance and found that no payments had been received from Yellowmix for over six months,and Greenfields would not allow this balance to be circularised.Instead management has assured your team that they will provide a written representation confirming that the balance is recoverable.

　　Warranty provision

　　The warranty provision included within the statement of financial position is material.The audit team has performed testing over the calculations and assumptions which are consistent with prior years.The team has requested a written representation from management confirming the basis and amount of the provision are reasonable.Management has yet to confirm acceptance of this representation.

　　Required：

　　（a）Describe the audit procedures required in respect of accounting estimates. （5 marks）

　　（b）For each of the two issues above:

　　（i）Discuss the appropriateness of written representations as a form of audit evidence;and （4 marks）

　　（ii）Describe additional procedures the auditor should now perform in order to reach a conclusion on the balance to be included in the financial statements. （6 marks）

　　Note:The total marks will be split equally between each issue.

　　（c）The directors of Greenfields have decided not to provide the audit firm with the written representation for the warranty provision as they feel that it is unnecessary.

　　Required：

　　Explain the steps the auditor of Greenfields Co should now take and the impact on the audit report in relation to the refusal to provide the written representation. （5 marks）

　　（20 marks）