Questions and Answers of Auditing Assurance Services

In the auditors’ completion of the audit, which of the following is not a subsequent event procedure?(a) Read available minutes of meetings of directors.(b) Make enquiries with respect to the
Which of the following would an auditor ordinarily perform during his or her review of after-balance-date events?(a) Analyse related party transactions to discover possible irregularities.(b)
The auditors are concerned with completing various phases of the examination after the balance sheet date. This period extends to:(a) the date of the final review of the audit working papers.(b) the
The following matters came to the attention of the auditors before the audit fieldwork was completed. Which one would require an adjustment to be made to the financial statements?(a) A discussion by
Auditors should send a letter of inquiry to those solicitors who have been consulted concerning litigation or claims. The primary reason for this request is to provide:(a) corroborative evidential
Which of the following is ordinarily included among the written management representations obtained by the auditors?(a) Sufficient audit evidence has been made available to permit the issue of an
Six months after issuing an unqualified opinion on a set of financial statements, the audit partner discovered that the engagement personnel on the audit failed to confirm several of the client’s
Subsequent to the issuance of the auditors’ report, the auditors became aware of facts existing at the report date that would have affected the report had the auditors then been aware of them.
Cosmos Ltd is a listed company that manufactures satellites and other communication equipment. It is now August 20X0, and the audit of Cosmos for the year ended 30 June 20X0 is nearing completion.
During the audit of the financial statements of Blackheath Manufacturing Ltd (BM), the managing director, Mr S. Hill, and the auditor, Mr P. Wales, reviewed matters that were supposed to be included
The financial year of Terry’s Tiles Ltd ended on 31 December 20XO. Your auditors’ report was signed on 26 February and the financial statements were issued on 9 March. Listed below are events
Brown and Collins, a firm of chartered accountants, is auditing the financial statements of Globe Ltd for the year ended 31 December 20X1. Tom Brown, the engagement audit partner, anticipates
State the main audit objectives for (1) sales transactions and (2) debtors’ balances.
What is the sequence of steps normally associated with processing of credit sales? For each step, identify one control.
What are the major files and printed outputs of computerised processing for sales transactions?
For each of the three functions pertaining to cash receipts transactions, formulate two questions that may be used in preparing an internal control questionnaire for this transaction class.
For the sales adjustment transaction class, indicate the three main types of transaction that might occur. For each transaction type, indicate one question that might be used in an internal control
What are some of the inherent risk factors that may affect (1) sales transactions and (2) debtors’ balances?
Discuss why the principal risk associated with the audit of sales and debtors is overstatement.
Indicate the transaction classes that should be considered in assessing control risk for debtors assertions. Should the acceptable level of detection risk be based on the planned or actual level of
What do you think are the three main assertions for debtors? Indicate the primary substantive procedures for those assertions.
Which of the following controls would most likely help to ensure that all credit sales transactions of the entity are recorded?(a) The invoicing department supervisor matches pre-numbered shipping
Which of the following internal control procedures would most likely ensure that all billed sales are correctly posted to the sales ledger?(a) Each shipment on credit is supported by a pre-numbered
Sales revenue is usually a very material balance within the financial statements of a company. Why would an auditor mainly focus his or her work on sales transactions occurring at the end of the year
Which of the following tests of control would provide audit evidence for the management assertion of completeness of revenue?(a) Observe separation of duties between filling and dispatching
After completing the testing of controls over cash receipts and sales adjustments, the auditor assesses the level of control risk to be higher than expected. How would this affect the auditor’s
Which of the following would most likely be detected by an auditor’s review of an entity’s sales cut-off?(a) Unauthorised goods returned for credit.(b) Excessive sales discounts.(c) Overlapping
Which of the following would give the most assurance concerning the valuation assertion of debtors?(a) Tracing amounts in the subsidiary ledger to details on shipping documents.(b) Comparing
You are conducting the interim audit of the Lancastrian branch of CB Wholesalers Ltd, fashionwear wholesalers. The branch is the largest single outlet of the company and has substantial annual sales
Ally McNeil is conducting the audit of a wholesale electrical goods distributor, Electra Ltd.Electra supplies appliances to hundreds of individual customers in the metropolitan area of Bigtown. It
Easy Europe Ltd (EE) is a large private company which operates a network of travel agencies throughout Middletown. EE uses a centralised on-line system to maintain its accounting records. Each branch
You have been assigned to the annual audit of Kaboom Ltd. You contacted the audit senior, Patrick Corr, and arranged a date to discuss the client and the current year’s audit.During your meeting
You are an audit senior and you have just finished the audit of Speedy Spares Ltd — a used car parts company. One month later...Your audit partner calls you into his office — he is not happy!
Western Ltd purchased the assets of Green Ltd. The financial report of Green Ltd was audited by Donaghue Partners, registered company auditors. While performing the audit, Donaghue Partners
Excregrow Ltd was a very successful fertiliser company operating in Sussex. The company had large stocks of fertiliser held in different locations throughout the county. The annual audit for 30 June
You are the external auditor of Kiwi Tours, a company which promotes New Zealand tours to the UK and owns a chain of duty-free shops. You have been auditing the company since it was listed on the
Identify the categories of management’s financial statement assertions and briefly explain each one.
Discuss the interrelationship between management assertions and the specific audit objectives developed for an entity.
What factors should the auditor consider when developing specific audit objectives?Can there be more than one specific audit objective for a particular account for each category of assertion? Explain.
Identify the types of auditing procedure that may be used to obtain evidence. For each procedure indicate one type of audit evidence that is obtained.
What information would you expect to see on a ‘standard’ audit working paper?
The objective of an audit of financial statements is:(a) to ensure that the company is free from all fraud.(b) to ensure that the financial statements are prepared in accordance with relevant
What audit procedure is most associated with completeness?(a) Checking that the sales ledger aged trial balance adds up.(b) Searching for all unmatched goods received notes.(c) Confirming a debtors
Inquiries of warehouse personnel concerning possible obsolete or slow-moving stocks provide assurance about management’s assertion of:(a) completeness.(b) existence.(c) presentation.(d)
To verify management’s assertion of existence, an auditor would most likely:(a) compare a sample of shipping documents to related sales invoices.(b) recalculate the total depreciation expense.(c)
Which of the following audit objectives was derived from the management assertion of rights and obligations?(a) Stock quantities include all products, materials and supplies on hand.(b) Liens on the
What does ‘sufficient appropriate’ audit evidence mean?(a) The amount of audit evidence that can be obtained given the time budget on the task.(b) Adequate evidence has been obtained in the
What would not be described as corroborating information?(a) Analytical evidence.(b) Confirmation from the bank.(c) Bank reconciliation prepared by the accounts clerk.(d) Attendance by the auditor at
What is not required as part of the audit process?(a) Substantive procedures.(b) Tests of control.(c) Assessment of materiality.(d) Procedures to obtain an understanding of the accounting and
The auditor’s permanent working paper file should not normally include:(a) copies of the memorandum of association.(b) extracts from the entity’s bank statements.(c) details of mortgages.(d) past
Under what circumstances can an auditor disclose information in the audit working papers?(a) When the working papers are subpoenaed by a court.(b) Ifthe Inland Revenue requests some information.(c)
During the course of an audit some of the following evidence is obtained by the auditor:1. creditor’s monthly statement from the entity’s files;2. management working papers in making accounting
A variety of specific auditing procedures for obtaining audit evidence is listed below.1. Send debtor’s confirmation letters to a number of the entity’s customers.2. Recompute depreciation
The audit partner of Smythe and Associates, Sally Smythe, receives a phone call from another auditing firm asking whether it can review the audit working papers of Identical Ltd, a client her firm
You are the audit partner of the accounting firm Cooper, Young and Partners. You are reviewing the work of an audit senior, Emily Tan, on your client Browns Ltd. You find the following working paper
Identify the four phases of a financial statement audit and discuss the time frame in which each of these occurs.
State the steps involved in accepting an audit engagement.
Why is it considered necessary for a successor auditor to communicate with a previous auditor? Identify three matters about which the proposed auditor should direct inquiries to the previous auditor.
Discuss the factors that an auditor must consider when deciding to accept an audit engagement.
Why is it important for an auditor to evaluate independence in deciding whether to accept a new client?
What are the purposes of an engagement letter?
Discuss the steps involved in the audit planning process.
Describe three types of information that an auditor might obtain to gain an understanding of the entity’s business and industry. How might these three types of information affect the audit plan?
Why is an auditor going to be interested in obtaining information about related parties in auditing an entity?
How can analytical procedures assist the auditor in audit planning?
The previous audit firm should tell the proposed audit firm:(a) the total cost it incurred in performing the audit of a company in the prior year.(b) its evaluation of the strength of the company’s
An auditor has been offered a new audit. What should the auditor do next?(a) The auditor should contact the client and discuss the risks associated with the audit for the purposes of planning.(b) The
The exercise of ‘due professional care’ requires that an auditor:(a) examines all available corroborating evidence.(b) critically reviews the judgement exercised at every level on the
Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the engagement letter is to:(a) remind management that the primary responsibility for
The element of the audit planning process most likely to be agreed with the client before implementation of the audit strategy is the determination of:(a) methods of statistical sampling to be used
In the tour of the client’s operations, the auditor noted two machines were not operating in the client’s factory. This meant that production was 25 per cent lower than normal. The factory
Analytical procedures used in planning an audit should focus on identifying:(a) material weaknesses in the accounting and internal control systems.(b) the predictability of financial data from
In performing your analytical review of sales, you find the following for a company with a 30 June year-end:Monthly gross profit April — 25 per cent May - 27 per cent June - 37 per cent July - 21
The audit partner of an accounting firm has just advised you that he has been approached to accept appointment as the auditor for Nevada Limited, a manufacturer of gaming machines. Nevada has been
Your client is Megabight Ltd, a large family-owned company which imports and sells a range of computer hardware products. You are currently planning the 30 June 20X11 audit and have obtained the
A small private company, Agchem Ltd, is involved in the research and development of chemicals used in the agricultural industry.The company is based in Drumnadrochit, a small remote Scottish village.
TV Tasty Ltd (TV) is in an industry which manufactures frozen food goods for the consumer market. It is a mature industry with traditional customer loyalty being eroded by take-away foods. Your firm
What is meant by the term ‘materiality’? What requirements are imposed on the auditors by this definition?
Why might planning materiality differ from the materiality level used in evaluating audit findings?
Discuss the differences between ‘quantitative’ and ‘qualitative’ in terms of materiality.
If the aggregated amount of audit errors is found to be material, what should the auditors do?
Define, and differentiate between, audit risk, inherent risk, control risk and detection risk.
What is the audit risk model and when is it used? Explain the interrelationships within the audit risk model.
Is it ever appropriate under Auditing Standards for the auditors to conclude that inherent and control risks are so low it is unnecessary to verify any assertions by substantive procedures for any
Explain the interrelationships among audit risk, materiality and audit evidence.
Discuss the relative costs of the two different audit strategies.
Why may a common strategy be used for a group of assertions affected by the same class of transaction?
Which of the following statements would best describe the concept of materiality?(a) Materiality is a matter for the professional judgement of the auditors.(b) Materiality should be a matter of
In determining an appropriate level of planning materiality for an audit, what should not be considered?(a) Prior years’ errors.(b) Trends in the industry within which the company operates.(c) The
What would not be an example of a qualitative factor that might affect your assessment of materiality?(a) A change in accounting method that is expected to materially affect the results of subsequent
On completion of the audit, if the auditor finds the aggregate uncorrected misstatements are material, he or she should:(a) re-evaluate the level of materiality used on the audit.(b) perform more
Which of the following can be manipulated by the auditor?(a) Inherent risk.(b) Detection risk.(c) Control risk.(d) Both detection and control risk.Choose the best answer.
If the auditor makes an assessment that there is a low level of control risk and inherent risk for an entity, what would you expect the auditor to do?(a) Perform no substantive procedures.(b) Perform
Which of the following best describes the nature of an audit strategy?(a) It is a detailed specification of auditing procedures to be performed.(b) It represents the auditors’ plan for meeting
In developing an audit strategy, the auditors specify all of the following components, except:(a) the extent of understanding of the accounting and internal control systems to be obtained.(b) the
You are an auditor in a small firm of accountants, Azlan Wong and Partners. You have been allocated the audit of Gregens Ltd and the partner calls you in to her office to discuss some planning
You are the audit senior and you have just completed the audit of Fine Furs Ltd, a maker of artificial fur clothing. In performing the audit, you made an assessment that the company has a low level
You are currently planning the 30 June 20X11 audit of Treelop Ltd, an Australian owned company that produces and exports woodchips to Japan. Treelop’s operations are in Warrenup, in the south-west
Audrey Pearce is an audit partner of Pearce Green, a firm of accountants. She is considering audit risk at the overall financial statement level in planning the audit for the finance company Homes
Why are internal controls so important within an entity?

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