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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

Your client, Sweet Sounds Ltd (SS), manufactures mini hi-fi systems. The company has a year-end of 30 June 2015. In December 2014, SS changed its manufacturing process to make its product more
You are an audit senior currently gathering audit evidence on the audit of Regens Ltd, a large listed company. Your manager has asked you to consider the use of analytical procedures in relation to
Westinghome Ltd is a large listed company which specialises in the manufacture of whitegoods and other electrical appliances. It is late April 2015 and you are currently planning the 30 June 2015
The critical difference between statistical and non-statistical sampling is the:A. Added precision attained with statistical sampling.B. Sampling risk can be quantified in statistical sampling.C.
If all other factors remained constant, changing the tolerable deviation rate from 10% to 8% would mean:A. The sample size would increase.B. The sample size would remain the same — there would be
Which of the following statements in relation to systematic selection are correct?i. It is not possible to measure the probability of an item being selected.ii. The results cannot be evaluated
Which of the following would not be considered a method of audit sampling?A. Systematic selection.B. Random selection.C. Block selection.D. Haphazard selection.
The sampling unit is:A. The physical location of the population from which the sample will be drawn.B. An individual item in the population.C. The individual control procedure being tested.D. A
Stratification is a way of improving audit efficiency in sampling. Which sampling technique could be said to have a similar effect to stratification?A. Probability-proportional-to-size sampling.B.
In evaluating the sample results, the planned control risk will be supported when the projected deviation rate is:A. Greater than or equal to the expected population deviation rate.B. Greater than or
What is meant by tolerable misstatement, tolerable rate of deviation and confidence level?
Identify and describe the four types of sampling risk that may occur in audit sampling including how they occur and how they impact an audit.
Identify the three methods of selecting the sample that are suggested in ASA 530 and explain how each is conducted.
Explain the difference between selective testing and stratification in selecting items for audit testing.
For tests of controls and substantive tests, identify the purpose of the test and what errors are being sought.
Identify the two statistical sampling methods available for substantive testing and list the situations when you would use these methods.
Explain why an auditor may decide to use non-statistical sampling.
Explain how the audit considers the qualitative aspects of errors found in a sample and how errors in the sample are extrapolated to the population.
Outlined below are some audit tasks performed by an audit assistant:1. Opened the file of purchase invoices and selected 20 orders as part of tests of controls over occurrence.2. Performed
Your firm was recently the subject of a routine investigation by a team from ASIC. The investigation largely involved the ASIC team selecting some working paper files in relation to audits the firm
The following procedures are part of the process of testing internal controls to reduce the level of substantive testing:i. Walk-through tests.ii. Audit sampling on internal controls.iii. Responding
During the audit planning of Rainbow Ltd, a manufacturer of miniature water fountains, the audit team highlighted the following matters.1. The audit partner wishes to place greater reliance on the
You are a senior accountant with Da Silva, Chang and Partners (DC), a four-partner firm operating in Perth. DC was formed 2 months ago as a result of a merger between Da Silva Partners and Chang
Sample techniques Sally Pearson has just completed testing of the depreciation of property, plant and equipment for her client Happy Grapple Ltd.Information from the draft financial report of Happy
Your client Chicken Supremacy Ltd is a manufacturer of fancy dress costumes. At the planning stage, your preliminary assessment of internal controls in relation to purchases and payables suggested a
Your audit firm is testing accounts receivable and has stratified the population into 5 strata, as outlined in the table below. Probability theory has been used to determine the appropriate sample
You are the in-charge audit senior on the audit of Socktop Ltd for the year ended 30 June 2015. In the audit plan receivables, inventory and warranty provisions were identified as significant risks
You are currently auditing Krome Ltd, a wholesaler and manufacturer of gardening tools sold in hardware stores. Krome has branch offices in Sydney, Melbourne and Adelaide; and head office is located
All 4 You Ltd owns a chain of retail outlets that sell newspapers, books and magazines, snacks and drinks, cigarettes and fancy goods for the tourist trade. There are 85 retail outlets spread
There is a considerable difference of opinion among auditing practitioners about the most appropriate method of audit sampling. Some believe the only appropriate method is statistical sampling.
Accounting for the numerical sequence of dispatch notes used in tracing will primarily meet the:A. Existence or occurrence assertion.B. Completeness assertion.C. Accuracy, valuation or allocation
Verifying the accuracy of the accounts receivable trial balance relates to the:A. Existence or occurrence assertion.B. Valuation or measurement assertion.C. Completeness assertion.D. Rights and
Which of the following is a cut-off test?A. Selecting a sample of delivery notes around the year-end and agreeing to sales invoices to ensure they are included in the appropriate period.B. Selecting
In the processing of accounts receivable confirmations the auditor would not normally be expected to:A. Personally post the requests.B. Include his/her own return address envelope.C. Maintain custody
Identify factors that ought to be considered in the assessment of inherent and control risks specific to sales and accounts receivable.
Why is the auditor likely to adopt a lower assessed level of control risk approach to the audit of accounts receivable wherever practicable? Why are substantive procedures more likely to be based on
What are the objectives of the internal controls of a sales system involving the ordering, despatch and invoicing for goods sold?
There are three stages in applying analytical procedures to sales and receivables in the final audit. Briefly explain each stage.
Confirmations are considered to be the most efficient procedure for obtaining sufficient appropriate audit evidence to support the existence and rights assertions of accounts receivable.However,
List the steps involved when the auditor reviews and tests the process used by management to estimate the bad and doubtful debts allowance.
As the internal auditor of the Sellanything Group of companies, you have been asked to investigate the cash sales system of Stationery Ltd, one of the subsidiaries. Stationery sells office supplies
Audrey Too Ltd operates a plant hire business. Bookings are received both over the telephone and via email. Audrey Too have a wide range of machines for hire, from chainsaws and lawnmowers through to
You have been assigned to perform tests of controls on the sales system at EDB Pty Ltd as part of the 30 June 2015 audit. EDB is a wholesaler of bathroom supplies such as vanity units, toilets, taps
You are an audit manager at Bling, Tat & Co and you are currently planning the audit of your client PartyFunTime Ltd, an online retailer of a wide range of gifts and party products. PartyFunTime Ltd
Flinders Boats Ltd builds a variety of watercraft for a wide range of commercial and private clients.You are engaged in the audit of trade receivables and the audit manager has suggested that
Your client is BigC Ltd, a large private firm with offices in all major cities of Australia. BigC Ltd specialises in selling concentrated fruit juices to Australian and overseas buyers. This is the
Your firm is the external auditor of Southwood Trading Ltd and you are auditing the financial statements for the year ended 30 June 2015. Southwood Trading has a turnover of \($25\) million and trade
High as a Kite Gliding Club is a members-based club for individuals who wish to fly gliders. The club income comes from subscriptions from club members as well as charging for glider rides. In the
Ally McNeil is conducting the audit of a wholesale electrical goods distributor, Electra Pty Ltd.Electra supplies appliances to hundreds of individual customers in the metropolitan area of Perth.It
You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd, for the year ended 30 June 2015. Coppero Engineering is a major manufacturer of steel parts and
The head office of Lighttime Ltd, wholesalers of electrical equipment, has asked you to review the system of control over cash collection at the Victorian branch because it suspects that
The predecessor auditor firm should tell the successor auditor firm:i. The total cost it incurred in performing the audit of a company in the previous year.ii. Its evaluation of the strength of the
In the investigation of a potential new client, if the client refuses to give permission to inquire of the existing auditor, or if the existing auditor does not respond fully, the prospective auditor
The exercise of ‘due professional care’ requires an auditor to:A. Examine all available corroborating evidence.B. Critically review the judgement exercised at every level on the engagement.C.
The purpose of using analytical procedures in auditing is to:A. Test for inefficiencies in operations.B. Understand internal controls.C. Identify unexpected fluctuations and relationships.D. Assess
What is the auditor's responsibility in assessing the risk of fraud in planning?A. To assess the risk of material misappropriation of assets only.B. To assess the risk of any fraud that may have
A high risk condition for the fraud risk factor ‘opportunity’ would be:A. Known or expected future layoffs.B. That the company is close to its debt covenants.C. Behaviour indicating displeasure
The auditors have requested the client's accounting staff to prepare some of the schedules and analyses. Who retains the property rights for these working papers?A. The auditors, as they are the
List the steps performed by an auditor before accepting a new audit appointment.
Identify applicable ethical considerations in accepting a new audit engagement.
What are the benefits of audit planning?
Discuss the contention that the engagement letter understates the auditor's legal responsibilities so as to discourage litigation.
What is the purpose of touring operating facilities and offices?
Explain the importance of analytical procedures and why auditors may also use non-financial measures in these procedures.
What are the auditor's responsibilities in relation to fraud?
Define the term ‘working papers’ and indicate their main function in auditing.
Identify the benefits of preparing audit documentation.
Following are a number of factors recognized by the auditor as having an effect on the risk of fraud.1. The company is vulnerable to interest rate fluctuations.2. Management has significant financial
Prior to the appointment of Burberry Partners as the auditor of WeCare for the 2015 financial year, some preliminary analysis has identified the following situations.• One of the accountants
Dinfal Ltd is a company that manufactures a range of products for the electronics industry. You work for a medium-sized firm of accountants, Ejo, Gam & Step. It is now 29 May 2015 and you have been
You are a partner in an audit firm and your firm has just won the audit for Dezigns Ltd, a company involved in marketing and development of brands for large companies. As per the requirements in ASA
Your client is Gateshead Pty Ltd, a large family-owned company which imports and sells computer hardware products. You are planning the 30 June 2015 audit and, from your enquiries of management, have
Tirthe Ltd sells a range of indoor and outdoor furniture by recycling and reinterpreting old furniture and other wood, metal, glass and plastic products obtained from a variety of sources such as
Cleanway Ltd is a public company that competes in the highly competitive market for manufactured household products. The company is dominated by Rob Bigbucks, the chairman and chief executive
Needles and Glue Ltd is an online retailer of a broad range of art and craft products. You are an audit senior at the firm Naylor Swit & Co and are planning the financial report audit for the year
Alice is an audit senior for the accounting firm of Wong and Partners. In Alice's planning of the audit of Lincoln Traders Ltd for the year ended 30 June 2015, she asked to review the minutes of
You are employed by the accounting firm Round, Flat & Co and you have been asked to perform a review of the file of working papers for the recently completed financial report audit of the client
Moss Green Ltd is a wine grower and producer of medium- to high-quality wines located in Western Australia's Margaret River region. The company has recently listed on the Australian Securities
You are the audit manager of a medium-sized firm and have just received a package from Rachel Jones, the financial controller of Telechubbies Ltd, a toy manufacturer. This is your firm's first year
You are an audit senior in an accounting firm. Your firm has recently won an audit for a company that operates within the mining industry; however, your firm does not have any other clients that
Which of the following best describes business risk?A. The risk that the financial statements contain material errors.B. The risk that the company will not achieve its objectives.C. The risk of an
Which of the following is correct relating to risk?A. Understanding business risk is the responsibility of the directors only.B. Only internal auditors need to understand business risks.C. External
Why is it important to obtain an understanding of the internal control system?A. Weak internal controls may increase the risk of material misstatement.B. To determine the level of inherent risk.C.
Restricting the use of the information system to particular authorized personnel by use of passwords is an example of:A. Organizational controls.B. Systems development and maintenance controls.C.
Which of the following identifies the five components of internal control?A. Control environment, legal environment, information system, control activities, monitoring of controls.B. Control
Flowcharts should depict all of the following except:A. All operations performed in processing the class of transactions.B. The method of processing.C. The extent of segregation of duties.D. The
The auditor's understanding of internal control is documented to substantiate:A. The fairness of presentation of the financial statements.B. Adherence to requirements of management.C. Compliance with
For a given assertion, the relationship between the assessed control risk (CR) and inherent risk(IR) and the level of detection risk (DR) is shown correctly in which of the following (assume + means
For a particular assertion, control risk is the risk that:A. A material misstatement will occur in the accounting process and not be detected on a timely basis by the internal control structure.B.
Inherent risk could be best described as:A. A function of the effectiveness of the internal control structure.B. The risk that the auditor's substantive procedures will not detect any misstatements
Who is responsible for minimising the business risk of an organisation?
Describe the auditor's responsibility with regard to business risk and financial statement assertions.
List the four procedures necessary to obtain an understanding of the entity's internal control.
What is internal control? Why is it important?
Internal control can provide only reasonable assurance as there are inherent limitations within an entity's control structure. Identify and describe three of these limitations.
What are the responsibilities of management and the auditor in relation to internal control?
Control activities are detailed policies and procedures that management establishes to help ensure that its directives are carried out. List the four different categories of control activities and
Describe the alternative techniques for documenting the auditor's understanding of internal controls.
Audit risk is said to be a function of inherent risk, control risk and detection risk. Explain audit risk. Define and differentiate between each of its components.
If inherent risk and control risk are high why will detection risk be set as low and what effect does this have on the audit strategy?PROFESSIONAL application questions

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