You are the audit senior responsible for the audit of Spectrum Ltd for the year ended 30 June 2018. During your initial planning meeting with Justin James, the chief financial officer (CFO), he informs you of the following changes in the company’s operations.

(a) To help achieve budgeted sales for the year, Spectrum is about to introduce bonuses for sales staff. The bonuses will be an increasing percentage of the gross sales made by each salesperson above certain monthly targets.

(b) Spectrum plans to close an inefficient factory in country Tasmania before the end of 2018. It is expected that the redeployment and disposal of the factory assets will not be completed until the end of

(c) the following year. However, Justin is confident that he will be able to determine reasonably accurate closure provisions.

(d) The chief executive officer (CEO), Geoff Alderton, has just returned from Italy, where he signed a contract to import a line of clothing that has become the latest fashion fad there. The company has not previously been engaged in the clothing industry.

Due to Justin’s workload, the company recently employed a treasurer, Alice Campbell. Justin is excited about the appointment, because in the three months since Alice has been with the company she has realized a small profit for the company through foreign exchange transactions in US dollars.

For each of the scenarios provided, outline how the information affects inherent risk.

review of the accounting records for the year 2014 reveal the following:
a. The January 1, 2014 balances are:
Share Premium – Preference ……………………………….OMR 250,000
Share Premium – Ordinary …………………………………OMR 425,000
Retained Earnings ………………………………………….OMR 1,200,000.
b. No errors have been made in recording 2014 transactions or in preparing closing entry for the net income.  
c. Preference shares are OMR 50 par, 7%, and cumulative; 15,000 shares have been outstanding since January 1, 2013.
d. Ordinary shares are OMR 10 par, 250,000 shares issued and outstanding.   
e. On September 1, 2014 the company discovered an understatement error of OMR 56,000 in computing depreciation in 2013.
f. A cash dividend of OMR 250,000 was declared and properly allocated to preference and ordinary shares on October 1, 2014. No dividends were paid to preference shareholders.
g. On December 31, 2014, a 10% ordinary share dividend was declared out of retained earnings on ordinary shares when the market price per share was OMR 17.
h. Net Income for the year 2014 was OMR 585,000.
You are required to answer the following questions: (Show all calculations clearly)
(A) Prepare a retained earnings statement for 2014.   
(B) Prepare an equity section at December 31, 2014.                              

In a study of monthly salary distribution of residents in Paris conducted in year 2015, it was found that the salaries had an average of €2200 (EURO) and a standard deviation of €550.

One years later (in 2016), it was suspected that the average salary had increased. A hypothesis test was conducted at a significance level of 5% to test the suspicion. A random sample of size 64 was chosen with mean of €2385 and standard deviation of €650. (Answer up to 4^th decimal points for each numerical question.)

Question 1:

Set up the alternative hypothesis.

Select one:

x¯¯¯>2200x¯>2200

μ>2200μ>2200

μ>2385μ>2385

x¯¯¯>2385

Question 2: Assume that the population standard deviation had not changed from 2015. Find the test statistic.

Question 3:

Based on the assumption in Question 2 above, find the rejection region.

Select one:

z>1.645z>1.645

z<−1.645z<−1.645

z>1.96z>1.96

z<−1.96z<−1.96

z>2.33z>2.33

z<−2.33

Question 4: Based on the assumption in Question 2, find the pp-value.

Question 5: What is the conclusion?

Select one:

There is not enough evidence to infer that the average salary had increased at 5% significance level.

There is enough evidence to infer that the average salary had increased at 5% significance level.

There is enough evidence to infer that the average salary had increased at 10% significance level.

There is not enough evidence to infer that the average salary had increased at 10% significance level.

There is enough evidence to infer that the average salary had increased at 2.5% significance level.

Question 6: The assumption made in Question 2 was certainly not reasonable. Find the test statistic again, assuming that the population standard deviation had changed from 2015. Also assume that the population was normal.

Question 7: Find the rejection region again based on the new assumptions made in Question 6.

Select one:

t>1.6706t>1.6706

t>1.6686t>1.6686

t>1.9971t>1.9971

t>2.0003

In another study conducted in 2016, the average of monthly salaries of 45 randomly chosen residents in Bordeaux was found to be €3200; the sample standard deviation of the chosen salaries was €600. The suspicion was that the average salary of residents in Paris is lower than the average salary of residents in Bordeaux.

The research team was to conduct a tt-test to test the suspicion. But they had no information on the two population variances. So they first conducted an FF-test at a significance level of 5% to determine if the two population variances are equal or not, assuming that both populations were normal.

Set   1=1= Paris;  2=2= Bordeaux.

Question 8: Set up the alternative hypothesis for the FF-test.

Question 9: In the FF-test, what is the test statistic? Find the rejection region in the FF-test.

Question 10:What is the conclusion?

Select one:

There is enough evidence to infer that H1H1 is true.

There is not enough evidence to infer that H1H1 is true

Question 11: The analyst then conducted an appropriate tt-test at a significance level of 5% to test the suspicion. Set up the alternative hypotheses for the tt-test.

Question 12: Find the test statistic in the tt-test and the rejection region in the tt-test.

Question 13: What is the conclusion?

Select one:

There is enough evidence to infer that μ1μ1 is lower than μ2μ2 at 5% significance level.

There is not enough evidence to infer that μ1μ1 is lower than μ2μ2 at 5% significance level.

There is not enough evidence to infer that x¯¯¯1x¯1 is lower than x¯¯¯2x¯2 at 5% significance level.

There is enough evidence to infer that x¯¯¯1x¯1 is lower than x¯¯¯2x¯2 at 5% significance level.

There is enough evidence to infer that x¯¯¯1x¯1 is lower than x¯¯¯2x¯2 at 2.5% significance level.

The daily sales of a small retail store in Calgary for the last year are normally distributed with a mean of $2050, and a standard deviation of $300.

What is the probability of daily sales exceeding $2,500?

From a sample of 5 days, what is the probability of having a sample mean less than $2,200?

a. 0.0668; 0.8682

b. 0.4332; 0.0668

c. 0.0668; 0.9332

d. 0.0668; 0.9795

e. 0.4332; Approximately 100%