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business
auditing 12th
Auditing 12th Edition Alan Millichamp, John Taylor - Solutions
You are the manager in charge of the audit of Crighton-Ward, a public limited liability company which manufactures specialist cars and other motor vehicles for use in films. Audited turnover is £140m with profit before tax of £75m. All audit work up to, but not including, the obtaining of
What is a SORP?
One of your junior staff has prepared some slides for a presentation to a client on the practical procedures involved in auditing. The slides contain the following statements:a) Materiality is generally defined as being about 5 per cent of gross profit or 10 per cent of net profit.b) Audit sampling
What is the difference between an ICQ and an ICEQ?
Give three advantages of flow charting a client’s system.
What is a walk-through test?
What is audit risk? How does it differ from business risk?
A proper understanding of internal controls is essential to auditors in order that they understand the business and are able to effectively plan and execute tests of controls and an appropriate level of substantive procedures. You are the auditor of a small manufacturing company, Dinko, that pays
What are the components of inherent risk?
What are the three main audit strategies?
What sort of work can be carried out at an interim audit?
You have recently been appointed auditor of DonkeyAid, a small, registered charity which raises funds to rescue distressed donkeys. The charity makes payments to individuals who adopt rescued donkeys so they can provide suitable accommodation and to meet initial vet's fees, etc. The charity is run
What would be the main components of an audit plan?
How would an audit plan be recorded?
Down Market Department Stores plc sells a high proportion of their merchandise on extended credit. The system for dealing with such credit sales is highly organized and well controlled. The Receivables Ledger is kept on a specially designed computer system. The Receivables of the company at 30
What are the main classes of assertions about items in accounts?
Archaic Manufacturing plc has a freehold factory which has been used to make the company's heavy metal products for generations. The factory was revalued ten years ago and is being depreciated over 50 years from that value. The company made a product for many years which has now been shown to be
What varieties of audit evidence are there?
Hermit Galleries plc are international art dealers with a turnover of £30m a year. They specialize in Impressionist paintings and have an inventory valued at £20m. Recently it has been rumored that some £9m worth of their inventory may be the work of a particularly brilliant forger. Towards the
What basic techniques for obtaining audit evidence are there?
What criteria are there for assessing reliability of audit evidence?
What criteria are there for assessing sufficiency?
List sources of audit evidence.
What might influence an auditor’s judgement on sufficiency of audit evidence?
Give examples of reliance by auditors on the evidence supplied by specialists.
In what conditions may such reliance be required?
What factors indicate the reliability of the specialist?
What terms should appear in the agreement?
How should the auditor evaluate the evidence?
One of the basic methods of audit testing is to select representative samples of transactions and balances for detailed testing, such samples being selected using either statistical or non-statistical methods. Your firm is the external auditor of Polyglot Ltd for the year ended 30 November 2021.
Why is a 100 per cent check not usual in auditing?
You are the audit senior of Bobo Ltd, a manufacturer of electrical goods. You have been asked to design audit tests for part of the purchases system.Key aspects of the system you are reviewing are:1 All purchases are ordered by means of an official order signed by the purchasing manager.2 All goods
You are part of the audit team auditing the financial statements of Monckton Ltd for the year ended 30 April 2021. As part of the audit planning, you are applying analytical procedures to the draft financial statements. As a result of the calculations, you have selected the following as requiring
How does the level of sampling relate to audit risk?
Hoopoe plc is an old established large food processing company mainly buying poultry from local farmers, freezing them and selling them to retailers on credit terms. Assets employed total £6m, revenue £15m, profits are £1.8m and receivables are £3m. The company has excellent internal controls
Where is a 100 per cent check likely to be applied?
Sheek Clothing plc is a retailer with 200 branches throughout the UK. Most of the branches are small. The inventory is a very significant item in the financial statements. Inventory is counted physically at all branches on the nearest Sunday to 31 March and that Sunday becomes the year end. Each
What is the difference between a test of control and a substantive test?
Tickitt & Run are about to embark on the audit of Hosiah Wholesale Health Foods Ltd. The company has been established for five years and has been modestly successful. The auditors have not encountered many problems in the past except for debt collection problems and bad debts. A feature of the
What is meant by representative population and sampling units?
What is ‘tolerable misstatement’ and how is it related to performance materiality?
What factors are relevant in considering whether to sample?
List the stages in sampling.
Auditors are looking at purchases. Should they see the population to be sampled as all goods entered in the goods received book or all purchase invoices?
Auditors are sampling (statistically) purchase invoices to ensure that all are checked against goods inwards notes. Such checks are evidenced by the signature of a member of staff in a grid. Given the population size (25,000), the sample size (500) and those 24 items carried no signature, what
List the sampling methods available.
List the advantages and disadvantages of judgement sampling and of statistical sampling.
List some sample selection methods.
Distinguish level of confidence from precision interval.
List some statistical sampling techniques.
Why is MUS not good for testing understatement?
What is tolerable rate of deviation?
List control objectives for a purchasing system.
What types of control would there be in a revenues credit system?
What types of control would there be in a wages system?
What audit tests would be performed on purchase invoices?
When would cash balances not be audited?
What is the main principle of segregation of duties?
List other forms of internal controls.
How would you verify the existence of an arithmetical control?
What are the key audit considerations when auditing small businesses?
You are the manager responsible for prospective new clients and you have visited Bolington Publishing plc which publishes a small range of fiction paperbacks. The chief executive is Daniel Dunbar, and he has asked your firm to make a proposal for the company's audit and other services. During the
You are a manager in Costello, a firm of Chartered Certified Accountants, which has recently adopted a business risk methodology. You have been involved in briefing clients about this 'top-down approach' and promoting the risk management assurance services which Costello offers. The following
List some external risks facing companies.
The principal activity of Bateleur Zoo Gardens (BZG) is the conservation of animals. Approximately 80 per cent of the zoo's income comes from admission fees, money spent in the food and retail outlets, and animal sponsorship. The remainder comprises donations and investment income. Admission fees
List some internal risks facing companies.
Why do auditors use a business risk approach?
What are the consequences of the approach?
What can a company do about risk?
Explain the difference between business risk and audit risk.
You are responsible for the audit of the tangible non-current assets of Megatron Ltd, a company engaged in the manufacture and supply of soft drinks and other beverages to the retail, catering and leisure industries. The accountant has provided you with the following schedule summarizing the
Explain the common features between business risk and audit risk.
Twinkle plc manufactures lighting and lighting equipment for the home and commercial premises. The audit team is looking to test the year-end cut-off procedures for Purchases and inventory as of 31 March 202X. The auditors attended the inventory count and noted that the last Goods Received Note
What are the implications of business risk for the audit?
What are the six aspects to be covered in verifying an asset?
You are an audit manager of Wrunne & Hyde LLP and you are currently planning the audit of Macedon plc Co., a company which develops and manufactures health and beauty products and distributes these to wholesale customers. Its draft profit before tax is $6.4m and total assets are $37.2m for the
Osocheep Supermarkets Ltd has a main depot and five large supermarkets. Their financial year end is Thursday 31 March 202X and inventory is to be evaluated as at the close of business on that date. The next day is an exceptionally busy one with much business in terms of deliveries from suppliers,
List the points that could be covered in verifying an asset.
How is land and buildings verified?
What is the key issue in the valuation of intangible assets?
When should purchase goodwill be written off?
What are the directors’ responsibilities for inventory count?
List the characteristics of good inventory count procedures.
What are the auditor’s duties towards inventory count:(i) Before the inventory count?(ii) During the inventory count?(iii) After the inventory count?
What is the main audit issue in connection with the valuation of long-term work in progress?
Outline the procedures for verifying receivables.
Explain monetary unit sampling.
When should analytical procedures be used?
What factors influence the extent of use of analytical procedures?
List some analytical review procedures.
What actions can auditors take if they find fluctuations or unexpected variations?
Sutti & Shweep are in the process of completing the audit of their client Fredbare Ltd, a manufacturer of swimwear and sports clothing.They have just carried out the interim audit and have discovered the following:1 The purchases system has changed. They have provided the following description of
What is the basis of systems-based auditing?
Chuggeley assembles specialist motor vehicles such as lorries, buses and trucks. The company owns four assembly plants to which parts are delivered and assembled into the motor vehicles. The motor vehicles are assembled using a mix of robot and manual production lines. Workers normally work a
What are control objectives?
Camomile Ltd operates six restaurant and bar venues which are open seven days a week. The company's year end is 31 December 2021.You are the audit supervisor reviewing the internal controls documentation in relation to the cash receipts and payments system in preparation for the interim audit,
Wren, Gibbs and Angelo are brothers who own 75 per cent of a firm of builders with a turnover of £7m, specializing in house alteration and improvements. The remaining 25 per cent of the business is owned by their sister Bertha who lives abroad and only comes over once a year. The books have been
List the people and groups of people who are likely to be interested in financial statements.
Growbig plc used to be a medium-sized company trading in agricultural supplies and chemicals such as fertilizers and pesticides. It was owned by a consortium of farmers and growers and on flotation as a public company they each received shares and these still form the majority of shareholders even
After consideration of the academic theories of auditing, the views expressed in the Brydon Report and the definitions in the ISAs, particularly ISA(UK)200, consider what the purpose of audit is in the twenty-first century.Discussion– Is it to preserve public confidence in a company and its
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