Mock exam 4 62% Flashcards
The advances in technology have meant auditors can use data analytics more during the course of an audit.
Which of the following statements are true?
Data analytics will help test existence of non-current assets
100% of transactions could be tested with some balances
More detailed analytical procedures can be performed
100% of transactions could be tested with some balances
More detailed analytical procedures can be performed
(Physical verification will still be needed to test the existence of NC assets)
In which of the following instances should the field junior on an audit report to the firm’s money laundering nominated officer?
Mis-posting of receipts from customers to the wrong accounts on the receivables ledger
Company providing a loan to new graduates, to be paid back through payroll
Cash receipts with no details of the transactions in the accounting records
Transposition errors on additions of non-current assets
Cash receipts with no details of the transactions in the accounting records
(Mis-posting of transactions and transposition errors show a lack of controls, not necessarily money laundering)
Which TWO of the following are areas in which a self-interest threat may arise?
Audit fees are based on a % of the clients profit
The client has indicated they will seek a second opinion
The client wants the auditor to select a new accountancy software
The client has not paid last year’s audit fees
Audit fees are based on a % of the clients profit
The client has not paid last year’s audit fees - (The client not paying previous fees presents self interest threat as auditor is less inclined to find errors to ensure they still get paid)
For each of the following factors, select whether it would cause the sample size to INCREASE or DECREASE when performing tests of detail.
An increase in the level of potential fraud
Stratification of the population where possible
An increase in the tolerable misstatement
An increase in the level of potential fraud - INCREASE
Stratification of the population where possible - DECREASE
An increase in the tolerable misstatement - DECREASE
Stratification involves dividing units into sub groups, which can reduce sample sizes
An increase in the tolerable misstatements means samples can decrease as extrapolation of errors are less likely to be material
Which of the following is true for the type of engagement, the evidence sought and the conclusions given in a statutory audit?
Reasonable assurance, sufficient and appropriate evidence, negatively expressed opinion
Limited assurance, sufficient and appropriate evidence, negatively expressed opinion
Reasonable assurance, sufficient and appropriate evidence, positively expressed opinion
Limited assurance, sufficient and appropriate evidence, positively expressed opinion
A statutory audit provides REASONABLE assurance, gathers SUFFICIENT and APPROPRIATE evidence and expresses a POSITIVELY expressed opinion
Auditors performing analytical procedures on P Co, a chain of pizza restaurants, have identified that gross margin has increased from 66% to 72%.
Which of the following could be a valid explanation of the increase?
Increased competition meaning prices remained static
The repayment of a bank loan reducing interest expense
An increase in marketing spend
Changes in suppliers leading to cost reductions of raw materials
Changes in suppliers leading to cost reductions of raw materials
Increased marketing spend doesnt directly affect gross margin as it usually impacts sales or is classified as an operating expense
Cost reductions of raw materials directly improves gross margin by lowering production costs
At a recent inventory count for M Co, a manufacturer of kitchen appliances (fridges, freezers), the audit junior made the following notes.
Inventory that had been sold and despatched was still included in the inventory balance, and
damaged items had not been marked and excluded from the count.
Which of the following financial statement assertions have been affected?
Completeness and valuation
Cut-off and accuracy
Completeness and accuracy
Cut-off and valuation
Cut-off and valuation
CUT OFF is impacted because inventory that was sold should not be included in the current period’s inventory balance
Which of the following is a risk in the sales system?
Ensuring customer creditworthiness
Goods ordered are not required by the business
Goods may not be despatched for orders made
Bank reconciliations reviewed by someone other than the preparer
Goods may not be despatched for orders made
(If goods are not despatched for orders made, this will lead to a loss of customer goodwill as they will be unhappy at not receiving the goods they ordered)
The following describes the processes in the payroll system at S Co, a fast food restaurant.
For each process, select whether it represents a STRENGTH or a DEFICIENCY of the system.
Employees having individual clock cards, which they use to clock in and out
A sample of weekly wages and all relevant deductions is recalculated, and signed as checked
A yearly print out of all changes to standing data is sent to senior management to review, and signed as authorised
Employees having individual clock cards, which they use to clock in and out - DEFICIENCY
A sample of weekly wages and all relevant deductions is recalculated, and signed as checked - STRENGTH
A yearly print out of all changes to standing data is sent to senior management to review, and signed as authorised - DEFICIENCY
Got em ALL WRONG
1 - clock cards should be used in conjunction with sample headcounts for physical presence
2 - wage recalc ensures that the correct wage is calculated
3 - yearly printout of standing data is too infrequent
Which TWO of the following are the auditor’s responsibility regarding fraud?
Communicating to the audit team the fraud risks
Communicating to management the discovery of a fraud
To report all frauds to shareholders
To ensure the financial statements are free from all fraud
Communicating to the audit team the fraud risks
Communicating to management the discovery of a fraud
In the audit of payables for G Co, which of the following instances would indicate that the payables balance is understated?
Goods received post year end, invoice received post year end, with liability recognised in payables
Goods received pre year end, invoiced received pre year end, liability not recognised anywhere
Goods received pre year end, invoice received post year end, liability recognised in payables
Goods received pre year end, invoice received post year end, liability recognised in Goods Received rather than as an Accrual
Goods received pre year end, invoiced received pre year end, liability not recognised anywhere
(If items are received PRE YE, the liability should be recognised . If goods are received POST YE, no liability exists, so if this was recorded, payables are overstated)
ISA 315 gives examples of control activities.
Which TWO of the following are classed as control activities?
Overtime hours approved by warehouse supervisors
Attitude, awareness and actions of management
Comparison of units sold against previous periods
Internal audit annual review of overall control systems
Overtime hours approved by warehouse supervisors
Comparison of units sold against previous periods
(OT approved is an authorisation control activity)
(Comparison of sales is a performance review control activity)
Which of the following is the strongest form of audit evidence?
Receivables confirmation letter agreeing to a receivables balance in the ledger
Observation of warehouse workers checking the quality of goods inwards
Analytical procedures on donations to a charity
Recalculation of bank interest on a loan
Recalculation of bank interest on a loan - strongest as it is performed by the auditor
In which one of the following circumstances is monetary unit sampling most appropriate?
When testing for understatement of assets
When testing for overstatement of assets
When testing for understatement of liabilities
When testing for understatement of expenses
When testing for overstatement of assets
MUS tends to focus on high value items in a population. As such it is most helpful for testing overstatement
Which TWO of the following are general sources of threats to independence identified by the IESBA Code?
Self-interest threat
Confidentiality threat
Management threat
Advocacy threat
Self-interest threat
Advocacy threat
(Confidentiality is a principle of the ethical code)
(Mgmt threat is identified by the FRC ethical standard only)
