Exam 202302

Question 1

What is the difference between substantive procedures and TOC?

Answer 1

Substantive procedures is looking into details of company transactions/accounts.
Looking inside the protective layer to identify any errors/mistakes made with internal controls

TOC is more inspecting, observing of the controls to see if they have been designed appropriately and operating effectively. Looking at the outer protective layer which helps the transactions flow

Question 2

What is a dual purpose test? Give an example of one

Answer 2

dual purpose test is when it can be classified as a TOC and SP at the same time
An example would be:
In sales, recalculating the total price by obtaining the invoice and multiplying the authorised price and the quantity ordered together to ensure accuracy.

Question 3

What processes are included in substantive procedures?

Answer 3

Enquiry, inspect, observe, recalculate, reperform, confirm, trace and vouch
(everything except trace and vouch are also TOC)

Question 4

Define inherent risk and factors of it

Answer 4

Risk that a material misstatement could occur

• fraud
• related to significant economic or accounting developments
• complex transactions (IT systems)
• significant related party transactions
• significant subjectivity in measurement of financial information
• significant transactions outside the client’s normal course of business.

Question 5

In tracing or vouching, besides the right direction. What else needs to be right/credible?

Answer 5

The source documents
If internally generated may not be as credible as documents that provides external evidence of services or confirmation that the client has performed their obligations.

Question 6

What are some examples of internally sourced documents?

Answer 6

sales invoice
sales receipts
accounting reports

Question 7

What is negative and positive confirmation

Answer 7

Negative confirmation: a debtor needs to respond only when amount is incorrect (one way test for overstatement)

Positive response: debtor needs to respond regardless of amount incorrect or not

Question 8

What are some down sides to negative confirmation?

Answer 8

1. only tests for overstatement (if we understate amount debtor owes us they won’t reply back etc)
2. Too easy to assume correct because some debtors may forget to reply back

**can be sent to any third parties for confirmation, not just debtors

Question 9

What could be a faster way to check if debtor has paid than confirmations

Answer 9

subsequent receipts - sample accounts receivable received and vouch to subsequent receipt to see if it matches the amount debtor owes us

Question 10

What are some audit procedures and audit evidence (for subsequent events)

Answer 10

audit procedures: inquiries of management,
audit evidence: debtor’s confirmation, management reprsentation, minutes of directors’ meetings, minutes of directors’ meeting

Question 11

What are the integrity principles under APES 110 Code of ethics for Professional Accountants? What are their threats?

Answer 11

Principles:
integrity
objectivity
confidentiality
professional behaviour
professional competence and due care

Threats:
self-interest
self-review
intimidation (perceived or real)
advocacy
familiarity