Mock exam 3 Attempt 2 88%

Question 1

Which TWO of the following roles could internal audit function perform to help the board in its management of the company and still operate effectively?

Valuation of land and buildings

Monitor of internal controls

Conducting fraud investigations

Providing direct assistance to external auditors with testing

Answer 1

Monitor of internal controls

Conducting fraud investigations

(The main role of internal audit is evaluating the effectiveness of internal controls - this may involve fraud investigations as part of their activities)

Question 2

For each of the following statements, select whether they are TRUE or FALSE in respect of audit reports.

An explicit opinion is given on whether the financial statements give a true and fair view of the state of the company’s affairs at the end of the financial year

The Key Audit Matters section of the audit report describes all of the material misstatements found

Explicit opinion is given on whether all information and explanations have been received

Answer 2

An explicit opinion is given on whether the financial statements give a true and fair view of the state of the company’s affairs at the end of the financial year - TRUE

The Key Audit Matters section of the audit report describes all of the material misstatements found - FALSE

Explicit opinion is given on whether all information and explanations have been received - FALSE

THE KAM ONE IS ALWAYS FALSE

Question 3

When determining sample sizes for test of details there are a number of factors that the auditor should take into account.

For each of the following factors, select whether it could cause the sample size to INCREASE or to DECREASE.

A decrease in the tolerable misstatement

A decrease in the auditors assessment of the risk of material misstatement

A decrease in the use of analytical procedures to test the same assertion

Answer 3

A decrease in the tolerable misstatement - INCREASE (a reduction in tol mistatement means more samples are needed)

A decrease in the auditors assessment of the risk of material misstatement - DECREASE (decrease in risk results in fall in the sample size)

A decrease in the use of analytical procedures to test the same assertion - INCREASE (fewer substantive procedures aimed at the same assertion means sample sizes will have to increase)

Question 4

For each of the following statements concerning substantive testing of cash, select whether they are TRUE or FALSE.

Direct confirmation of bank balances will be obtained from the client’s bank

Bank reconciliations will be reviewed for evidence of being signed by senior managers as completed on a monthly basis

Physical cash counts will be performed for material cash balances or where fraud may be suspected

Answer 4

Direct confirmation of bank balances will be obtained from the client’s bank - TRUE

Bank reconciliations will be reviewed for evidence of being signed by senior managers as completed on a monthly basis - FALSE

Physical cash counts will be performed for material cash balances or where fraud may be suspected - TRUE