Completion of Audit Question Bank

Question 1

List the detail audit procedures for future cash flow forecast.

Answer 1

1. Consider the reliability of the company’s system to generate information
2. Discuss the assumptions with which the forecast is based with management, determine whether it is adequate
3. Compare forecast with actual inform to determine assumptions are being upheld
4. Review budget with sales
5. Review reasonableness of figures
6. Reperform all calculations
7. Inspect minutes

Question 2

Discuss the different types of report issued

Answer 2

1. Unqualified = a scope of limitation exist but other audit procedures were available to verify
2. Qualified = scope of limitation exist, audit procedures not able to verify
3. Adverse opinions = disagreement with management - causes financial statement to be misleading
4. Disclaimer = scope of limitation, impact material and fundamental

Question 3

List the indicators for going concern problem

Answer 3

1. Net liability position
2. Borrowing mature but no renewal
3. Withdraw of supplier support
4. Negative cash flows
5. Operating losses
6. Adverse key financial ratios
7. Arrear or discontinued dividends
8. Inability to pay creditors
9. Change from credit to cash on supplier request
10. Inability to obtain additional finance for new investment

Question 4

Actions by management to improve financial position.

Answer 4

1. Revalue land and building
2. Negotiate for lower interest rate with bank
3. Decrease overdraft facilities
4. Extend credit term with creditor
5. Strict collection policy for debtor
6. Delay capital expenditure
7. Decrease operating expenses where possible