As part of the initial planning process, it is essential that auditors obtain a reasonable idea of what has happened in the period so far and obtain a preliminary view of any possible problems areas at which audit work can be directed.

Required: a. State any TWO (2) comparisons of financial information as stated in auditing standards (ISA 520 Analytical Procedures) (2 marks)

b. Briefly explain the consequences if the auditor finds the analytical procedures reveal no unusual fluctuation to compare to current year. (3 marks)

For each of the illustration below, determine the component of audit risk that is most suitable: ILLUSTRATION COMPONENT OF AUDIT RISK 1 The complexity of regulating financial institutions due to frequent changing of rules and regulations. 2 Confirmation received from account receivable could not detect that there was a material misstatement in the account balance. 3 The cashier who is responsible to receive the cash from the counter is also responsible to record and keep the money in the strong room. (3 marks) d. Explain what does it mean by population and sampling units. (4 marks)

NO	ILLUSTRATION COMPONENT OF AUDIT RISK	COMPONENT OF AUDIT RISK
1	The complexity of regulating financial institutions due to frequent changing of rules and regulations
2	Confirmation received from account receivable could not detect that there was a material misstatement in the account balance.
3	The cashier who is responsible to receive the cash from the counter is also responsible to record and keep the money in the strong room.

d. Explain what does it mean by population and sampling units. (4 marks) B. ISA 320 Materiality in Planning and Performing an Audit defines the concept of materiality and its relationship with the audit risk. In considering whether an item is material, accountants require to consider quantitative misstatement as well as qualitative misstatement.

Required: a. Identify whether each of the following situation is the quantitative or qualitative factor in determining the materiality level.

NO	SITUATION	QUALITATIVE / QUANTITATIVE
1	Amount involving fraud
2	Improper description of accounting policy
3	Inadequate explanation on calculation on depreciation for property, plant and equipment in the notes to the accounts
4	The proportion of the amount paid in directors fees.

b. Comment on the relationship between materiality and audit risk in determining the nature, timing and extent of audit procedures. (4 marks)