Mock exam 2 Attempt 2 86%

Question 1

For the risks below, which relate to the purchases cycle, select whether the risk is associated with the placing of a PURCHASE ORDER or at the PAYMENT stage.

1. Payments not recorded in the correct period
2. Goods purchased may be for personal use
3. Goods purchased from unreliable supplier

Answer 1

1. Payments not recorded in the correct period - PAYMENTS
2. Goods purchased may be for personal use - ORDERING
3. Goods purchased from unreliable supplier - ORDERING

Checks over whether goods are necessary and whether suppliers are reliable should be made at the ORDERING stage whereas the other risk occurs later on in the process

Question 2

Which THREE of the following are normally included within an engagement letter?

1. Responsibilities of the directors and auditors
2. Scope of the audit
3. Timetable for the audit
4. Acceptance of auditor’s appointment

Answer 2

1. Responsibilities of the directors and auditors
2. Scope of the audit
3. Acceptance of auditor’s appointment

Timetable for the audit is not a compulsory element of an engagement letter as required by the ISA 210

Question 3

Ross Limited has just discovered that an ex-employee Rachel has been paid for 4 weeks following the date she left the company.

Which of the following control procedures would be least likely to reduce the risk of employees who have left being made up a pay packet, which is collected by leaver or accomplice?

The warehouse manger supervises the payout of wages (she knows all the employees personally)

Comparison of payroll records with pay packets to ensure that they match

Weekly check of pay packets against list of leavers and joiners

Weekly authorisation of payroll by payroll and human resource manager

Answer 3

Comparison of payroll records with pay packets to ensure that they match

READ THE QUESTION!!! it is the LEAST likely

Because comparing payroll records with pay packets would only confirm the employee received the correct amount of pay

Question 4

Which of the following statements is an accurate description of a management representation letter?

It confirms the scope of the engagement.

It sets out material weaknesses in internal controls.

It confirms matters management have said to audit staff as evidence towards the audit opinion.

It sets out matters arising during the engagement which are of interest to management.

Answer 4

It confirms matters management have said to audit staff as evidence towards the audit opinion.

YOU PICKED 4, THIS RELATES TO MGMT LETTER

Question 5

For the list below, select whether the test is deigned to provide evidence about COMPLETENESS or VALUATION.

1. As part of testing property, plant and equipment, a review of the repairs account in the nominal ledger.
2. As part of testing property, plant and equipment, additions are agreed back to invoices.
3. As part of testing inventory, cut off testing on year end deliveries is performed.

Answer 5

1. As part of testing property, plant and equipment, a review of the repairs account in the nominal ledger - COMPLETENESS
2. As part of testing property, plant and equipment, additions are agreed back to invoices - VALUATION
3. As part of testing inventory, cut off testing on year end deliveries is performed - COMPLETENESS

Agreeing back to invoice = VALUATION

Question 6

Two types of procedures used in gathering evidence are tests of controls and substantive procedures. Sometimes, a specific procedure can serve as both a test of control and substantive procedure.

For each of the following examples, select the type of procedure(s) illustrated.

1. The year end bank reconciliation is reviewed
2. Sales for the year are compared to budget

Answer 6

1. The year end bank reconciliation is reviewed - BOTH
2. Sales for the year are compared to budget - SUBSTANTIVE

Reviewing the YE bank rec is both as it confirms YE balance in the BS

Analytical procedures (such as sales for the year being compared to budget) are a form of substantive procedure

Question 7

In carrying out tests of control, which THREE of the following types of procedures can be used?

1. Inquiry
2. Analytical procedures
3. Computation
4. Inspection
5. Reperformance

2, 4 and 5
1, 4 and 5
1, 2 and 5
2, 3 and 4
3, 4 and 5

Answer 7

1, 4 and 5