Questions and Answers of

An entity uses internal control procedures in order to mitigate the risks to which the entity is exposed. Listed below are two internal control procedures which are applicable to an entity’s sales
Accounting systems have control objectives and control procedures to mitigate the risks that the control objective is not met.For each of the following, select whether they are a control objective,
Two types of computer-assisted audit techniques (CAAT) are test data and audit software.For each of the procedures listed below, select the type of CAAT which would be used to perform that
ISA 230 ‘Audit documentation states:‘The objective of the auditor is to prepare documentation that provides:(a) A sufficient and appropriate record of the basis for the auditor’s report; and(b)
Hung Lo Ltd is a wholesaler of furniture (such as chairs, tables and cupboards). Hung Lo buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from
You are the auditor of Whizzipop plc a manufacturer of soft drinks. The draft consolidated financial statements for the year ended 30 September 2X18 show revenue of $125 million (2X17 – $114
Decide whether or not these statements are true or falseAuditors owe a duty of care to potential investors in their client True/FalseAuditors may reduce the consequences of a negligence claim against
Bogle McRum is a firm of Chartered Certified Accountants is currently engaged in finalising the audit of Bugle plc, a publicly listed company. The audit partner Hugo Sponge is reviewing the audit
Bogle McRum is a firm of Chartered Certified Accountants is currently engaged in finalising the audit of Bugle plc, a publicly listed company. The audit partner Hugo Sponge is reviewing the audit
The external auditor may seek to place reliance on internal controls in order to restrict substantive testing.In each of the following circumstances, select whether the external auditor is likely to
List the main characteristics of good audit evidence.State the main ways in which auditors can gather the evidence they need and provide an example of each method
You are the audit senior of Wellington Ltd for the year end 31 December 201X, in charge of trade receivables. You are about to start your yearend work and have been given the following extracts by
Explain the differences between• An accrual• A provision• A contingent liabilityExplain the audit objectives, including the assertions to be validated, in the audit of provisions and how an
You are an audit manager with the audit firm of Spottit & Hope. One of your clients, Bolington Limited, has recently asked your firm to perform a limited review of the financial statements.During
Whizzipop has several subsidiaries, some of which are audited by firms other than yours. The financial statements of one such subsidiary company, Twizzle Ltd, for the year ended 30 September 2X18,
State whether each of these statements are true or falseAuditors have no responsibility for validating comparative figures providing the audit report for the previous financial period has not been
Bludger Ltd’s auditors were appointed after the end of the financial year and discovered that the company had also changed banks shortly after the year end. The directors refused permission for the
Management representations are a source of audit evidence. These representations may be oral or written, and may be obtained either on an informal or formal basis. The auditors will include
List the basic assumptions under which an entity would be considered to be a going concern
At the completion stage of an audit there are a number of final review procedures which must be carried out prior to signing the audit report. In not more than 500 words explain these procedures and
In order to prove a successful claim for negligence against an audit firm there has to be a duty of care which was breached by the audit firm with the result that a loss was incurred. Auditors Woody
Discuss the difference between a review engagement and a statutory year-end audit.
The Chairman’s Report of Pudding plc states that investment property rental forms a major part of revenue. However, a note to the financial statements shows that property rental represents only
You are a member of the audit team for the audit of Learnersinnit plc, a private provider of high quality educational services. The team have just completed the interim audit for the current year.
State whether the following are true or falseEmphasis of matter reports are not a modification of opinion but merely draw attention to some disclosure in the financial statements True/FalseNegative
The auditing profession is facing unique technical challenges. These can be summarised briefly as:• The rise of Internet based retailers and service providers with diversified international
and international travel agents. Travel agents that wish to be able to make bookings on credit must complete an account application form with at least three references. The auditor’s tests provide
How does the result of controls testing affect auditing of the processes affecting cash and the substantive testing of the cash balance?
Explain how subsequent receipts tests provide useful evidence about debtors’ valuations.
Tello Enterprises (Tello) is a large importer of goods from China. Tello deals with thousands of suppliers in China and sells the goods to discount stores in Australia. The discount stores include
When would a client be more likely to (i) overstate or (ii) understate expenses?
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated
What are the auditor’s responsibilities for ‘going concern’?
Tia is discussing with Rory and Leigh the risks they identified and how this information will be used in the audit risk model. Tia comments, ‘The audit risk model provides us with a guide for our
Crest Outfitters is a relatively young company, started in 2010 out of the garage of Peter Crest. Peter is a photographer and travels for 10 months of the year around the world capturing images for
Now that the Crest Outfitters executives have decided to obtain reasonable assurance on their financial report, Ben (the CFO) advises that they should obtain formal tenders from a range of audit
After testing internal controls, Leigh and Rory have come to the conclusion that most of Crest Outfitters’ controls are operating as designed, though they did encounter some issues around the end
A junior employee must prepare a bank reconciliation and submit it to the manager. Is this a prevent or detect control? Explain.
What is the difference between observation and inspection of physical evidence?
The form completed by casual employees to claim overtime requires a signature from the supervisor before payroll will process the claim. Is this a prevent or detect control? Explain.
What is the premise underlying the use of benchmarking? Why is it helpful to the auditor?
Explain the purpose of substantive testing, and give examples of the main types of substantive tests.
Why would an auditor use observation to gather evidence? What are the strengths and weaknesses of this type of test?
What does ‘nature’ mean in the context of the nature, timing and extent of substantive testing?
Explain ‘roll-forward’ procedures. When are they appropriate?
Tia has called a team meeting to discuss how the testing over Crest Outfitters’ web sales went and to talk about gathering substantive evidence on the remainder of the financial statements. This
Ella has been asked to join the team responsible for designing the audit program for a new client, Carnation Corp Ltd (Carnation), a manufacturing and wholesaling firm. Carnation recently went
Michael Rutherford suggests the following audit procedure should be included in the audit program to gather evidence on the cut-off assertion for the revenue account: Select a sample of sales from
Michael Rutherford has another suggestion for the audit program for the revenue account. This time he suggests: Select a sample of sales from the sales journal and agree the details in the journal to
Luke Green and Michael Rutherford are discussing the audit program for the revenue account. Luke and Michael disagree about whether they should use procedure A or B below to test the occurrence
Liam has the task of designing the audit program for the payroll area. There have been no recent changes to the payroll system, or its interface with the general ledger. Among other tests, Liam is
Reliable Paper Ltd provides cardboard, paper and plastic packaging materials to a large number of manufacturers and distributors in all states. The cardboard and paper division is a well-established
Nicholas has the task of reviewing the evidence from analytical procedures conducted by the audit assistants on the audit of Tumbleweed Holdings. The audit assistants have reported the results of
What does interim testing mean? Give some examples of substantive tests that can be done before the end of the year.
Explain why gathering evidence about the occurrence assertion for a set of transactions could also provide evidence for the completeness assertion for a balance sheet account. Provide an example.
Explain why provisions are difficult to audit by control testing.
Donna Angelo is designing the audit program for cash for her client, Northerly Aspect Ltd (Northerly Aspect). Northerly Aspect is a property management services company. It deals with six major
Hematite NL is a mining company based in Western Australia. Hematite has 10 open-cut mines, most of which primarily extract iron ore. When the iron ore is extracted a small amount of other minerals
Just Start Tools runs a network of small hardware retail outlets across the state. All sales are made for cash or on credit card and processed through electronic tills. A wide range of goods are
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated
Pedestrian Ltd (Pedestrian) has been a client of Violet Partners for many years. You are an audit senior and have been assigned to the Pedestrian audit for the first time for the financial year end
Nicola is managing the performance of audit procedures on the trade receivables transaction file. Her main focus is the posting of entries for sales and sales returns to the control account and the
In preparation to test other items on the income statement, Rory reminds Leigh to remember her introductory accounting. ‘An account balance is the result of the transactions that have been posted
What is an unrecorded liability? Why would an auditor search for them?
Thomas is the engagement partner on the audit of Tidmouth Enterprises, a listed company selling small kitchen appliances. The appliances are made in China and imported and sold to retail outlets by
Sodor Connections (Sodor) is an internet-based dating agency. Its business model is that anyone can search its website and review for free the profiles of people looking for friends or partners, but
Henry is seeking your advice on the selection of substantive procedures for the audit of his client, Clash Ltd. Clash Ltd is a specialist outdoor clothing and equipment retailer and has experienced
Pharma Duplicitous Ltd is developing a new drug for diabetes. The expenditure does not meet the requirements for deferral as an asset and must be expensed in the current period. The amounts involved
Toby Crimson is a veterinary surgeon, specialising in poultry. His customers are poultry farmers, large and small, throughout the state. To support his practice, he also operates Feathers First
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated
What is the difference between current-year misstatements and prior-year misstatements?
List the steps involved in forming a conclusion on the audit.
What are key audit matters? How do these affect the format of the audit report?
What are the auditor’s responsibilities under the Corporations Act to report breaches of the Act? Who does the auditor report to?
Greg Brown is reviewing the results of the review of subsequent cash receipts. There are several receipts listed from customers that were considered doubtful at the end of the year (30 June). Greg is
Paul Smitten is the partner in charge of the audit for a new client, Umbrella Holdings (UH). The client engaged Paul’s audit firm in November 2019, in preparation for the 2020 audit. From 30
Apricot Industries is a new audit client for the 2020–21 financial year. Apricot’s financial report for the 2019–20 year, the last with the previous auditor, was prepared on the assumption of a
It is August 2021 and the first audit for Apricot Industries with your audit firm for the 2020–21 year is almost complete. Prior to reaching your final conclusions, you are reviewing the working
Fender Ltd has placed deposits with an overseas supplier totalling $350 000 for the manufacture of specially branded goods on 18 May 2020. On 5 June 2020 the supplier closed due to civil unrest in
Alyssum Ltd has been a client of Geoff & Aleida Partners for many years. You are an audit senior and have been assigned to the Alyssum audit for the first time for the financial year end 30 June
Meg Lithgow is the engagement partner of the audit of Champion Securities, an investment company. Most of Champion’s assets and liabilities are financial and their valuation is critical to the
Lucas Upton has had difficulties throughout the audit of Fascia Catering. The company is a long-standing client of the audit firm and there have been no problems in the past. However, four months
Elijah Brown is reviewing the results of the subsequent events audit procedures. Elijah is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with
Oliver and Charlotte are discussing the audit plan for a large manufacturing company. The company has two main manufacturing plants plus several warehouse and distribution centres (one in each
Melbourne Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specialises in extreme precision manufacturing where tolerances are measured in distances
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group
What are some sources of inherent risk in mergers and acquisitions?
Which of the following are affected by the quality of an organization’s internal controls?a. Reliability of financial data. b. Ability of management to make informed business decisions.c. Ability
The three laws most relevant to auditor liability include common law, contract law, and statutory law.(T/F)
Which of the following controls is related to the payment of inventory purchases?a. Cycle counts b. A disclosure committee c. A three-way match d. Both a and c.
In terms of planning analytical procedures, assume that the client has introduced a new product with a low price point and significant customer demand. The auditor would expect inventory turnover to
Auditors can use confirmations with the client’s banker as a substantive procedure to obtain evidence on the completeness of debt. (T/F)
Objective criteria for evaluating the quality of the client’s accounting policies is not available; assessing the quality, not just the acceptability, of the significant accounting policies is a
The purpose of internal control is to provide absolute assurance that an organization will achieve its objective of reliable financial reporting.(T/F)