26.You are the auditor of Brett Pty Ltd (Brett). Following your preliminary assessment of Brett's controls around its inventory, you decided to undertake a combined audit approach in auditing the existence of inventory. The results of your test of controls reveal that the deviation rate exceeds tolerable error. Which of the following is the MOST likely course of action you would undertake if existence of inventory is a significant risk for the audit of Brett?

a)Increase the sample size of tests of controls.

b)Increase reliance on the use of substantive analytical procedures.

c)Increase planned level of substantive test of details.

d)Direct audit effort towards other assertions related to inventory.

27.You are the auditor of Upper Limited (Upper) for the financial year ending 31 December 2016. The fieldwork for the Upper audit was completed on 21 February 2017 and the audit report was signed on 8 March 2017. On 30 March 2017, it comes to your attention that a major customer of Upper, Seeb Limited (Seeb) filed for bankruptcy on 23 March 2017. This was unexpected as based on the audit work performed on Upper, Seeb was generally prompt in their payments and there was no indication of their financial difficulties. Which of the following describes the most appropriate action, if any, you would require Upper's management to undertake in relation to the 2016 financial statements?

a)Adjust the financial statements.

b)Disclose by way of subsequent event note to the financial statements.

c)No action required.

d)Recall and revise the 2016 financial statements.

28.Your client has a number of significant contracts at year end (30 June 2017) for the future shipping of its commodity-based products to factories in China. Due to the impact of the credit crisis, a number of these contracts are no longer viable and your client has failed to comply with the contractual terms. As a result, several shipping lines have claimed compensation loss which you have become aware of while considering subsequentevents.Youhaverecommendedtoyour client for theyearended 30 June 2017:

a)to include a subsequent events statements; notein the financial

b)to include a subsequent events note in the financial statements and directors' report;

c)to record a provision in respect of full amount of the likely compensation; and

d)not to make any adjustment or include any note compensation claims in the financial statements.

29.Where an auditor has assessed the work performed by internal audit as satisfactory may rely upon that work.' Is this statement:

a)true, provided the necessary disclaimers have been signed by internal audit?

b)true, provided the external auditor remains responsible for any areas of judgment?

c)true, provided the internal auditor reports to the audit committee?

d)false; an external auditor cannot rely on the work of internal audit as internal audit can never be truly independent?

30.Which of the following statements are true?

a)Where the auditor has relied on the work of a third party this fact must be mentioned in the audit report.

b)An auditor may rely on evidence that is gathered by third parties.

c)Internal auditors only monitor the efficiency of internal controls.

d)An expert can never provide sufficient and appropriate audit evidence about a particular account, as they are not auditors.