Ch-3 Rest Question Flashcards
What are The objectives of the auditor regarding written representation?
The objectives of the auditor are:
(a) To obtain written representations
To obtain written representations from management. Also that management
believes that it has fulfilled its responsibility for the preparation of the
financial statements and for the completeness of the information provided to
theauditor;
(b) To support other evidence
To support other audit evidence relevant to the financial statements or
specific assertions in the financial statements by means of written
representations; and
(c ) To respond appropriately
To respond appropriately to written representations provided by
management or if management does not provide the written representations
requested by the auditor.
The auditor P of PAR and Co., a firm of Chartered Accountants is conducting audit of
Kapur Industries Ltd. The auditor requests management to provide Banker’s certificate
in support of Fixed deposits whereas management provides only written representation
on the matter.Required
Discuss how would you deal as an auditor.
Although written representations provide necessary audit evidence, they do not
provide sufficient appropriate audit evidence on their own about any of the matters
with which they deal. Furthermore, the fact that management has provided reliable
written representations does not affect the nature or extent of other audit evidence
that the auditor obtains about the fulfillment of management’s responsibilities, or
about specific assertions.
Applying the above to the given problem, the auditor would further request the
management to provide him with the Banker’s certificate in support of fixed
deposits held by the company.
What are the Matters Relevant in Planning Attendance at Physical Inventory
Counting?
Matters relevant in planning attendance at physical inventory counting include, for
example:
(a) Nature of inventory.
(b) Stages of completion of work inprogress.
(c ) The risks of material misstatement related to inventory.
(d) The nature of the internal control related to inventory.
(e) Whether adequate procedures are expected to be established and proper
instructions issued for physical inventory counting.
(f) The timing of physical inventory counting.
(g) Whether the entity maintains a perpetual inventory system.
(h) The locations at which inventory is held, including the materiality of the
inventory and the risks of material misstatement at different locations, in
deciding at which locations attendance is appropriate
(i) Whether the assistance of an auditor’s expert is needed.
When inventory is material to the financial statements, the auditor shall obtain
sufficient appropriate audit evidence regarding the existence and condition of
inventory by:
(a) Attendance at physical inventory counting, unless impracticable, to:
(i) Evaluate management’s instructions and procedures for recording and
controlling the results of the entity’s physical inventory counting;
(ii) Observe the performance of management’s count procedures;
(iii) Inspect the inventory; and
(iv) Perform test counts.
(b) Performing audit procedures over the entity’s final inventory records to
determine whether they accurately reflect actual inventory count results.
Pride India Ltd is a manufacturer of various FMCG (fast moving consumable goods)
range of products. The company is having several cases of litigation pending in courts.
The auditor wanted to identify litigation and claims resulting to risk of material
misstatements.
Required
Suggest the auditor with reference to SAs.
The auditor shall design and perform audit procedures in order to identify litigation
and claims involving the entity which may give rise to a risk of material
misstatement, including:
(a) Inquiry of management and, where applicable, others within the entity,
including in-house legal counsel;
(b) Reviewing minutes of meetings of those charged with governance and
correspondence between the entity and its external legal counsel; and
(c ) Reviewing legal expense accounts.
If the auditor assesses a risk of material misstatement regarding litigation or claims
that have been identified, or when audit procedures performed indicate that other
material litigation or claims may exist, the auditor shall, in addition to the
procedures required by other SAs, seek direct communication with the entity’s
external legal counsel.
When using external confirmation procedures, the auditor shall maintain control
over external confirmation requests, including:
When using external confirmation procedures, the auditor shall maintain control
over external confirmation requests, including:
(a) Determining the information to be confirmed orrequested;
(b) Selecting the appropriate confirming party;
(c) Designing the confirmation requests, including determining that requests are
properly addressed and contain return information for responses to be sent
directly to the auditor; and
(d) Sending the requests, including follow-up requests when applicable, to the
confirming party.
The design of a confirmation request may directly affect the confirmation response
rate, and the reliability and the nature of the audit evidence obtained from
responses.
Which factors should be considered when designing confirmation request?
Factors to consider when designing confirmation requests include:
♦ Specific identified risks of material misstatement, including fraud risks.
♦ The layout and presentation of the confirmation request.
♦ Prior experience on the audit or similar engagements.
♦ The assertions being addressed.
♦ The method of communication [for example, in paper form, or by electronic
mode (like e-mail) or other medium].
♦ Management’s authorisation or encouragement to the confirming parties to
respond to the auditor. Confirming parties may only be willing to respond to
a confirmation request containing management’s authorisation.
♦ The ability of the intended confirming party to confirm or provide the
requested information (for example, individual invoice amount versus total
balance).
While conducting the audit of Jay Kay Ltd, the auditor K of KLM and Associates,
Chartered Accountants observes that there are large number of Trade payables and
receivables standing in the books of accounts as on 31st March. The auditor wanted to
send confirmation request to few trade receivables but the management refused the
auditor to send confirmation request.
Required
How would the auditor proceed?
If management refuses to allow the auditor to send a confirmation request, the
auditor shall:
(a) Inquire as to management’s reasons for the refusal, and seek audit evidence as
to their validity and reasonableness;
(b) Evaluate the implications of management’s refusal on the auditor’s assessment
of the relevant risks of material misstatement, including the risk of fraud, and
on the nature, timing and extent of other audit procedures; and
(c ) Perform alternative audit procedures designed to obtain relevant and reliable
audit evidence.
If the auditor concludes that management’s refusal to allow the auditor to send a
confirmation request is unreasonable, or the auditor is unable to obtain relevant
and reliable audit evidence from alternative audit procedures, the auditor shall
communicate with those charged with governance in accordance with SA 260.
The auditor also shall determine the implications for the audit and the auditor’s
opinion in accordance with SA 705.
What constitutes a ‘true and fair’ view is a matter of an auditor’s judgment in the particular circumstances of a case. In more specific terms, to ensure true and fair
view, an auditor has to see:
an auditor has to see:
(i) that the assets are neither undervalued or overvalued, according to the
applicable accounting principles,
(ii) no material asset is omitted;
(iii) the charge, if any, on assets are disclosed;
(iv) material liabilities should not be omitted;
(v) the profit and loss account and balance sheet discloses all the matters
required to be disclosed;
(vi) accounting policies have been followed consistently; and
(vii) all unusual, exceptional or non-recurring items have been disclosed
separately.
What are the Audit Procedure Regarding Events Occurring between the Date of the Financial
Statements and the Date of the Auditor’s Report
(a) Obtaining an understanding of any procedures management has established
to ensure that subsequent events are identified.
(b) Inquiring of management and, where appropriate, those charged with
governance as to whether any subsequent events have occurred which might
affect the financial statements.
(c) Reading minutes, if any, of the meetings, of the entity’s owners, management
and those charged with governance, that have been held after the date of the
financial statements and inquiring about matters discussed at any such
meetings for which minutes are not yetavailable.
(d) Reading the entity’s latest subsequent interim financial statements, if any.
When, as a result of the procedures performed as required above, the auditor
identifies events that require adjustment of, or disclosure in, the financial statements,
the auditor shall determine whether each such event is appropriately reflected in
those financial statements
