General points

Question 1

New audit client:

Answer 1

Unfamiliar with accounting policies,transactions,transaction,opening balnaces
Less assurance over opening balance-firm not done the previous audit.
Detection risk

Deploy experienced audit team
Take time to understande the company and its activitites
increased substantive procedures over the opening balances
Detailed team briefing

Question 2

Bonus based on PBT/ manipulation of FS

Answer 2

Overstatement of profits so the increase bonus
Risk of manipulation of FS
Risk in areas of provision and judgmental areas

Proffessional skeptism
Alert
Experienced audit team-to signifactnt estimates and judgmental areas.
aware of manipulation
Detailed cut off testing-revenue, inventory ,payables

Question 3

Issuance of shares(right issue etc)

Answer 3

Non standard transaction
incresed risk-not properly recorded
Right issue -made in premum -so split for share capital-share premium
(split is not correct,not disclosed accordance with standard and legislation)

obtain legal documentation of right issue -agree no of share issued and share price
recalculate the split -(share capital and share premium)-agree
Agree the disclosures are adequate and consistency-standard and legislation

Question 4

Outsourcing of service :

Answer 4

Detection risk-no sufficient and appropriate evidence
to confirm -completeness-accuracy of contorls-
consideration-over control of service organization
Any errors-wages and salaries misstatement.

Discuss -any monitoring been undertaken by mgt over payroll
Contact -auditor of service organisation-Type1,typq 2 report requiest
Consider-to obtain audit evidence (sufficient)- from compny-inrespect of wages and salaries.

Question 5

Local legislation:

Answer 5

Local legislation -more comprehensive than IFRS standard-must comply with local legislation
disclosure will not be complete and accurate.

Discuss-matter
Review-requirement of local legislation- ensure Disclosed appropriately

Question 6

Temporary financial accountant
ill financial accountant so temporary financial accountant:

Answer 6

Inexperienced
Unaware of business activities and procedures,
Increased risk of errors and omissions,

Discuss-technical competency and experience of the accountant
Increased substantive procedures-on material ares of FS

Question 7

Recieavbles:

Answer 7

Increased risk of receivables becoming irrecoverable
Receivables overstated
Allowances for receivables understated

Extend post year end cash receipts testing
Perform a review of the aged receivables listing to asses valuation of receivable’s
Discuss- adequacy of allowance of receivables

Question 8

Return on faulty goods:
Customer returned faulty goods-$120,000-,credit note yet to be issued

Answer 8

Credit note not issued properly-Receivables-Revenue-overstated

Inspect a copy of credi note
confirm adjustment to revenue and receiables

Question 9

loss on disposal $ 160,000 (this was surplus item)

Answer 9

Significant profit or loss on disposal-
Indicates companies depreciation policy may not be appropriate

Recaluclate-loss on disposal-agree with supprotig docuemnts
Discuss-depreciation policy -to assess reasonableness
Review-other gain/losses-on disposal-to assess reasonableness of dep policy

Question 10

Fraudulent transactions- dismissed Financial controller

Answer 10

indicates that companies internal control is weak
will have significant amount-fraudulent transaction-yet to be identified
this would need to written off
FS -will include errors.

Discuss :
Details of fruad done
What-procedure taken-to identify-any other fraud or adjustments
Team-maintain professional skeptics
alert to further risk

Question 11

Bonus issue:

Answer 11

share capital incre- reserve decr
If company-not accounted-bonus b4-riksof incorrect treatment
Legal issue-may arise-if bonus issue-not in accordance with company statutory constitution
Bonus issue-requires-disclosure in FS-risk of incomplete and inaccurate-disclosure

Reviw the treattment pf bonus issue
Agree the increase in share ca[ital to the share register and decrease in reseve
Review boar minuites-bonus issure
Review-statutory constitution document -confirm legality of share issue
Review th disclosures in the FS

Question 12

Purchase control deficiencies:

Answer 12

Report to mgt-by audit co-about deficiency in purchases cycle.
If the deficiencies not rectified-increased control risk-risk of misstatement
COS ,expenses and trade payables -not completely accurate

Discuss-mgt-were recommendation- implemented succefully or not?
If so, undertake test of these controls
If no, increase substantive procedures-to confirm completeness and accuracy