syllabus area D - past paper content

Question 1

asset going from NCA to HFS.
we have discussed with management and writen in WP that treatment is correct. is this SAE?
any more procedures?

Answer 1

is this SAE?

-discussion is relevant but management assertions must be corroborated
-discussion alone is not sufficient to reach audit conclusion
-evidence not obtained if IFRS 5 criteria is met
-Evidence not obtained if disclosure of discontinued operations is necessary

more procedures:
-board minutes to confirm sale approval and date
-correspondence with real estate agent to confirm factory is being marketed
-management written rep
-review inventory, payroll records to confirm production is stopped at factory
-auditor’s expert to confirm value of property and confirm this figure is used in impairment calculation
-check management accounts to see if factory is a major separate business line if yes disclosure for discontinued operation

Question 2

FS asked audit manager to check journal before posting NCA to HFS entry, cuz there was no one with relevant knowledge to do that at client.
issues?

Answer 2

-significant defeciency in internal control as its imp to FR process
-must be reported to TCWG and management
-controls over non recurring entries are imp as one off matters are included
-some IC like approval from board or audit committee
-report to TCWG should say that controls must be established to ensure accuracy and validity of JE
-FD behavior not ok. self review threat to independence
-make audit committee aware, tell them to hire competent person

Question 3

auditing capital expenditure
tested a material transaction
IC not operating effectively
authorisation not obtained before ordering
no segregation of duties over initiating and processing order

audit work done:
-agree purchase of vehicles to invoices, cash book and bank statement
-control deficiencies written in audit file

is this SAE? further procedures? report to TCWG?

Answer 3

is this SAE?
-shud have increased testing after verifying control deficiency
-investigate reason why controls not operating efficently
-increased fraud risk
-not all assertions covered

further procedures:
-verify physical existence and confirm they are used by employees
-obtain and review insurance docs
to confirm insurance is being paid
-trace the vehicles to NCA register to ensure completeness
-recalculate depn and agree to PnL.
-obtain registeration doc to confirm ownership

REPORT TO TCWG:
-fraud risk explain
-recommend improvements, culture tone at top etc

Question 4

payroll function outsourced
audit team has had no contact with outsourced company- FD passed payroll records to audit team
-few casual workers are paid in cash not entered in payroll system

-cash payments made to above workers have been agreed to petty cash records and amounts r considered immaterial

Answer 4

outsourcing:
-obtain assurance on controls of third party
-contact them, get info on controls
-no further work on petty cash as immaterial.

further audit procedures:
-review service agreement to unerstand nature of work
-read all reports to identify any risk of MM
-discuss and document relevant controls in place at client after receiving payroll data from 3rd party
-read any SOPs available to assess efficiency of controls
-analytical review, discuss variances with management
-recalculate amount of any unpaid tax for casual workers
-test of detail, agree amount of payslips to HR records

-talk to their auditor

-risk of ghost employees
-check hr records
-risk of hiring inappropriate people, ensure hr records are complete