Other

Question 1

Which of the following procedures provides the most reliable evidence when verifying rights and obligations of the railway trucks?

Answer 1

Inspect the purchase invoice or registration document of the trucks.

Question 2

Which of the following statements is/are true in respect of the revaluation of land and buildings?

Answer 2

• Bash Enterprises does not need to use a firm of chartered surveyors to perform the revaluation.
• The financial statements must disclose details of the revaluation and details of who performed the revaluation.
• The audit firm would not be able to rely on the work of Verity Valuations.

Question 3

Which TWO of the following financial statement assertions will need to be tested when auditing the non‐current assets of Bash Enterprises?

Answer 3

Classification and Presentation

Question 4

Which of the following indicates a company is not a going concern?

Answer 4

The company is profitable but the directors have decided to cease trading

Question 5

Which of the following audit procedures would provide the auditor with evidence regarding the going concern uncertainties faced by Green Co?

Answer 5

• Review the cash flow forecasts to assess whether Green Co will have sufficient cash to pay its liabilities when they fall due.
• Assess the reasonableness of the forecast for example whether cash inflows have been reduced to reflect the loss of income.
• Review correspondence from Green Co’s lawyer regarding the expected outcome of the legal action.

Question 6

The auditor of Green Co believes there is a material uncertainty relating to going concern.

How should the directors of Green Co reflect this in the financial statements?

Answer 6

Disclosure of the uncertainties should be included in the financial statements

Question 7

The auditor agrees with the client’s treatment of the going concern uncertainties. Which TWO of the following best describe the impacts to the auditor’s report?

Answer 7

The auditor’s report should contain a section called Material Uncertainty Relating to Going Concern.

The audit opinion should be unmodified

Question 8

Select the level of assurance given and type of conclusion expressed by a review of the financial statements.

Answer 8

Moderate and Negative

Question 9

Which of THREE of the following procedures will be used if Tanqueray & Co is engaged to perform a review of the financial statements?

Answer 9

• Enquiries of management and client staff
• Analytical procedures
• Obtain written representations from management

Question 10

Which of the following is NOT a benefit of Hendricks Co having an audit?

• The financial statements will be independently scrutinised increasing the reliability of the information
• Tanqueray & Co will be able to confirm the accuracy of the financial statements
• Fraud and error may be detected
• Internal control deficiencies may be highlighted and reported to management

Answer 10

Tanqueray & Co will be able to confirm the accuracy of the financial statements

Question 11

Which of the following statements is true in respect of the preparation of the financial statements of Hendricks Co?
- The financial statements of Hendricks Co should not be prepared by Tanqueray & Co.
- The audit fee will be lower if Tanqueray & Co prepares the financial statements and audits them.
- The same person who prepared the financial statements should be assigned to the audit team to reduce the time needed to perform the audit.
- The auditor should take care not to assume management responsibilities such as deciding on the company’s accounting policies

Answer 11

The auditor should take care not to assume management responsibilities such as deciding on the company’s accounting policies.

Question 12

Explain one advantage and disadvantage for Narrative Notes?

Answer 12

Narrative notes consist of a written description of the system. They detail what occurs in the system at each stage and any controls which operate at each stage.

Advantage - They are simple to record. After discussion with the client, these discussions are easily written up as notes.

Disadvantage - Narrative notes may prove to be too cumbersome, especially if the system is complex.

Question 13

Explain one advantage and disadvantage for Flow Charts?

Answer 13

Flowcharts are a graphic illustration of the internal control system. Lines usually demonstrate the sequence of events and standard symbols are used to signify controls or documents.

Advantage - It is easy to view the system in its entirety as it is all presented in one diagram.

Disadvantage - They can sometimes be difficult to amend, as any amendments may require the whole flowchart to be redrawn.

Question 14

Lemon Quartz Co’s finance director has asked your firm to undertake a non‐audit assurance engagement later in the year. The audit junior has not been involved in such an assignment before and has asked you to explain what an assurance engagement involves.
Required:

Explain the five elements of an assurance engagement.

Answer 14

1. Three‐party relationship
   - The intended user who is the person who requires the assurance report.
   - The responsible party, which is the organisation responsible for preparing
   the subject matter to be reviewed.
   - The practitioner (i.e. an accountant) who is the professional who will
   review the subject matter and provide the assurance.
2. Suitable subject matter. The subject matter is the data which the
   responsible party has prepared and which requires verification.
3. Suitable criteria against which the subject matter is evaluated or assessed in order for an opinion provided.
4. Sufficient and appropriate evidence is required to form a conclusion in order to give the required level of assurance.
5. Written assurance report containing the opinion which is given by the practitioner to the intended user.

Question 15

Which of the following should be included in the annual report regarding the work of the audit committee?

Answer 15

1. Significant issues considered relating to the financial statements.
2. How it has assessed the independence and effectiveness of the external audit process.
   3.Where there is no internal audit function, an explanation for the absence and how internal assurance is achieved.
3. An explanation of how auditor independence and objectivity are safeguarded, if the external auditor provides non-audit services.

Question 16

Which of the following options correctly describes the deficiency relating to NEDs’ remuneration and makes a valid recommendation for improvement?

Answer 16

NEDs’ remuneration should not be tied to the performance of Sistar Co as this can compromise independence. NEDs’ remuneration should be based on the time committed to
carry out the role.

Question 17

The board has started to compile a list of tasks for the IA department to carry out once it is up and running. It has been agreed that the first assignment to be completed will be for IA to review Sistar Co’s processes over asset expenditure to verify if the right items are purchased at an appropriate time and competitive price.

What type of internal audit assignment does this represent?

Answer 17

The assignment described represents a value for money audit as it is focused on assessing the economy, efficiency and effectiveness of Sistar Co’s asset expenditure.

Question 18

When deciding on the role of the IA department in undertaking operational audits, which TWO of the following should the team NOT be involved in?

Answer 18

Designing and implementing internal control procedures to address deficiencies.

Authorising transactions and performing reconciliations.

Question 19

What is the most appropriate response to the suggestion that Jane Leaf takes on the role of Engagement Quality Reviewer?

Answer 19

As Foliage Co is a listed company, Jane Leaf should not serve as the Engagement Quality Reviewer until a cooling-off period of five years has passed.

Question 20

What action should Kim Baum have taken when the possibility of employment with Foliage Co arose?

Answer 20

Kim should have notified Bark & Co of the potential employment so he could be removed from the audit team.

Question 21

What is Inherent Risk?

Answer 21

The factors mentioned, such as heavy reliance on a single supplier, industry prone to technological changes, and recent management change, collectively point to increased “Inherent risk.”

Question 22

XYZ Corporation has a significant amount of debt with variable interest rates. The auditor is concerned about the potential impact of interest rate fluctuations on the company’s financial statements.

Which assertion is MOST directly affected by this risk?

Answer 22

Valuation

Question 23

Audit procedures should be performed to obtain sufficient appropriate evidence relating to subsequent events.

Subsequent events procedures should be performed between the date of the financial statements and which other date?

Answer 23

The date of the auditor’s report

Question 24

Which of the following audit opinions is appropriate if no adjustment is made with regard to the compensation claims?

Answer 24

A qualified audit opinion based on the fact that the financial statements are materially misstated.

We are told in the scenario that the amount of the compensation claim is material to the financial statements.

Question 25

The Board of Directors at ABC Corporation is considering a significant acquisition.

What should the auditor consider most significant regarding corporate governance in this situation?

Answer 25

The effectiveness of the due diligence process

Question 26

Explain FOUR factors that auditors should consider when establishing materiality for financial statements. For each factor, provide a brief description of how it influences the determination of materiality?

Answer 26

1. Size and nature of the item: The size and nature of an item refer to its monetary significance and its impact on the overall financial statements.
2. Nature of the industry: The nature of the entity’s operations and the industry it operates in can influence materiality.
3. Regulatory and reporting: May specify certain materiality materiality thresholds or dictate the presentation of specific.
4. User needs and expectations: Understanding the needs and expectation of the financial statement users is essential.

Question 27

Details and responsibilities of quality management?

Answer 27

Supervision:
1. The auditor should keep track of the progress and assessment of the allocated time frames.
2. The related audit team should have the right experience for their roles.
3. Creating an environment where team members can raise concerns without fear of judgment.

Review
1. The related work had been complied with the correct international standards.
2. Need to consider whether they need to revise the nature, timing and extent of work performed.
3. Consideration should be given as to whether sufficient and appropriate evidence has been obtained for the related auditors opinion.