Chapters 10-11

Question 1

what is the mnemonic for obtaining evidence

Answer 1

AEIOU

Question 2

what is the A in AEIOU

Answer 2

Analytical procedures

Question 3

what is the E in AEIOU

Answer 3

Enquiry and confirmation

Question 4

what is the I in AEIOU

Answer 4

Inspection

Question 5

what is the O in AEIOU

Answer 5

Observation

Question 6

what is the U in AEIOU

Answer 6

Recalculation

Question 7

what should an auditor do if they find a failure in an internal control

Answer 7

record it and investigate, regardless of the monetary value

Question 8

whats a test of control for credit checks

Answer 8

the auditor can inspect a sample of new customer accounts and ensure the check was done prior to accepting the order

Question 9

what is a control to ensure all orders can be fulfilled

Answer 9

orders should be completed on sequentially numbered order forms and then goods despatched note produced

Question 10

how can audit test the control of ensuring the correct items are being delivered

Answer 10

physically inspect a sample of goods

review the customer complaint log

Question 11

how can an auditor test that a client is buying from the most competitive supplier

Answer 11

for a sample of orders check that the suppliers used are on the preferred suppliers list

Question 12

how to do a test of control on hours worked are correct for payroll

Answer 12

observe a sample of employees clocking in and out

inspect timesheets

Question 13

how to do a test of control on payroll - fictitious employees are paid

Answer 13

obtain a list of leavers and joiners and trace a sample to ensure HR have the appropriate documentation
review procedures for entering and removing employee numbers

Question 14

how to do a test of controls to ensure wages are paid at the correct rate

Answer 14

review a sample of reports

recalculate PAYE and other deductions

Question 15

how to do a test of controls on goods being accepted that were not ordered

Answer 15

inspect a sample of GRN’s and checking signature as well as tracing back to the order form

Question 16

how to do a test of controls on the inventory being valued at the lower of cost and NRV

Answer 16

review the entitys procedures for updating standard costs and test a sample of standard costs to determine whether they come to the current cost

Question 17

how to do a test of controls on goods ordered not being receieved

Answer 17

observe the receipt of goods into the warehouse to ensure goods are being recorded.
Verify the GRN is matched to the order form.

Question 18

how to do a test of controls on capital expenditure being reordered seperately

Answer 18

inspect orders for capital items

vouch the appropriate level of authorisation was made

Question 19

how to do a test of controls on capital items not being recorded on the non current asset register

Answer 19

review the reconciliation of the non current asset register

check a sample of NCA’s are on the register

Question 20

how to do a test of controls on capital items being misappropriated ( ensuring safe custody of assets)

Answer 20

test the physical controls by trying to gain access without following security procedures

Question 21

3 things to consider if a deficiency in controls is significant

Answer 21

volume of activity that has or could occur
amounts exposed to the deficiency
importance of the control to financial reporting