Help please Audit subject

Audit and assurance The following scenario relates to questions 1-5. The Gefest Co has been an audit client of your audit firm for the last two years. Gefest Co has only been trading for four years and the directors are not always clear on their responsibilities regarding auditors, audit reports and accounts preparation in general. Since Gefest Co became an audit client, the business services section of the assurance firm has been preparing the financial statements for Gefest Co. The financial statements have been prepared and sent to the client for approval and the audit engagement has also started. Gefest Co's turnover for the year is $8,500,000 and net profit is $857,000. The directors have informed the engagement partner that an invoice for $35,000 in respect of repair and redecoration work carried out on the company's main premises has been omitted from the financial statements. Given that the invoice was received after the end of the financial year, they are unclear whether any adjustment to the financial statements is required. 1) In respect of audit reports, the directors of Gefest Co want to know what is purpose of having the auditor's opinion on the audit report? A. It shows the the auditor is literally independent of the entity being audited B. It identifies the report is addressed to the shareholders C. It identifies the town from which the auditor practices D. It explains what has been audited and whether it is correctly recorded and presented 2) The assurance firm is preparing the financial statements of its client Gefest Co (using the business services section of the firm). Tick all instances that do not confirm the independence of the auditor? A. Staff in the business services section of the assurance firm must never work in the assurance department; similarly, staff in the assurance department must never work in the business services section B. Staff in business services may work in the assurance department, but not on the audit of any client they have prepared the financial statements for C. Staff in assurance may work in the business services section, including work on their assurance clients, because the business services section is never involved in audits D. Staff from both assurances and business services section of the firm can work in either department without any restriction Page 3 of 7 Audit and assurance 3) The directors of Gefest Co have been informed that the invoice for $350,000 in respect of repair and redecoration work must be included in the financial statements. The directors are still unsure whether they want to adjust. Which of the following summarises the effect of this invoice on the financial statements of Gefest Co? A. Profit overstated and material B. Profit understated and material C. Profit overstated and immaterial D. Profit understated and immaterial 4) The audit team has tested a sample of operating expenses and requested from the client the repairs and redecoration invoice of $35,000. The audit team has obtained a copy of the invoice and concluded that the recorded amount is incorrect. What would be an appropriate course of action on the basis of these results? A. No action; it is up to the directors to decide whether to include in the invoice in the financial statements B. The effect of the control error should be projected across the whole population C. Ask the directors what the invoice was for D. Ensure that the management representation letter includes a point where the directors confirm that the financial statements are complete and all evidence required for the audit has been given to the assurance firm 5) The directors of Gefest Co are interested to know what happens to an audit report if the financial statements are AMENDED for a material error. A. An unmodified audit opinion B. An unmodified opinion with an emphasis of matter paragraph C. Qualification of the auditor's opinion "except for" with a Key Matters point added to explain the D. Qualification of the auditor's opinion to make this adverse with an additional paragraph added modification below the opinion paragraph to explain the modification The following scenario relates to questions 610. You are an audit senior of Wilko \& Co and you are currently conducting the audit of Happy Co for the year ended 30 June 206. Materiality has been set at $50,000, and you are carrying out the detailed substantive testing on the year-end payables balance. The audit manager has emphasised that understatement of the trade payables balance is a significant audit risk. Below is an extract from the list of supplier statements as at 30 June 20x6 held by the company and orresponding payables ledger balances at the same date along with some commentary on the noted fferences: Audit and assurance Carnaval Co The difference in the balance is due to an invoice which is under dispute due to faulty goods which were returned on 29 June 206 Lillo Co The difference in the balance is due to the supplier statement showing an invoice dated 28 June 206 for $70,000 which was not recorded in the financial statements until after the year end. The payables clerk has advised the audit team that the invoice was not received until 2 July 206. 6) The audit manager has asked you to review the full list of trade payables and select balances on which supplier statement reconciliations will be performed. Identify, by ticking on the relevant box in the table below, if the following items should be included in, or excluded from, vour sample. 7) Which of the following audit procedures should be performed to cover existence assertion for receivables balances? A. Inspect the goods received note to determine when the goods were received B. Inspect the purchase order to confirm it is dated before the year end C. Review the post year-end cashbook for evidence of payment of the invoice D. Send a confirmation request to Lillo Co to confirm the outstanding balance 8) Which of the following audit procedure/(s) is/(are) not relevant to confirm the balance owing to Carnaval Co? (1) Review post year-end credit notes for evidence of acceptance of return (2) Inspect pre-year-end goods returned note in respect of the items sent back to the supplier (3) Inspect post year-end cash book for evidence that the amount has been settled A. 1 only B. 1 and 3 only C. 1 and 2 only D. 3 only 9) The audit manager has asked you to review the results the whole population testing. The testing results indicate that there is a $45,000 error in audited population which is due to invoices not being recorded in the correct period as a result of weak controls and a one-off error of $25,000 which was made by a temporary clerk. What would be an appropriate course of action on the basis of these results? A. The error is immaterial and therefore no further work is required B. The effect of the control error should be projected across the whole population C. Happy Co should be asked to adjust the payables figure by $45,000 D. A different sample should be selected as these results are not reflective of the population 10) To help improve audit efficiency, Wilko & Co is considering introducing the use of computer assisted audit techniques (CAATs) for some audits. You have been asked to consider how CAATs could be used during the audit of Happy Co. Which of the following is not an example of using test data for trade payables testing? A. Selecting a sample of supplier balances for testing using monetary unit sampling B. Recalculating the ageing of trade payables to identify balances which may be in dispute C. All of above D. None of above Audit and assurance The following scenario relates to questions 11-15. You are an audit manager at Blanck \& Co and are approaching the end of the audit of Simson Co, which is a large listed retailer. The draft financial statements currently show a profit before tax of $6.5m and revenue of $66m for the financial year ended 30 June 206. You have been informed that the finance director left Simson Co on 31 May 206. As part of the subsequent events audit procedures, you reviewed post year-end board meeting minutes and discovered that a legal case for unfair dismissal has been brought against Simson Co by the finance director. During a discussion with the Human Resources (HR) director of Simson Co, you established that the company received notice of the proposed legal claim on 10 July 206. The HR director told you that Simson Co's lawyers believe that the finance director's claim is likely to be successful but estimate that $700,000 is the maximum amount of compensation which would be paid. However, management does not intend to make any adjustments or disclosures in the financial statements. 11) Blanck \& Co has a responsibility to perform procedures to obtain sufficient, appropriate evidence that subsequent events are appropriately reflected in the financial statements of Simson Co. The Management approves financial statement on 15 July 206. The audit report was issued on 20 July 206. The year end is 30 June 206. Indicate, which period is considered as events after the reporting period: A. 15 July 20620 July 206 B. 30 June 20615 July 206 C. 30 June 20620 July 206 D. None of above 12) If, after the financial statements have been issued, Blanck \& Co becomes aware of a fact which may have caused its report to be amended, the firm should consider several possible actions. Which TWO of the following are not appropriate actions for Blanck \& Co to take? A. Discuss the matter with management and, where appropriate, those charged with governance B. Obtain a written representation from management C. Consider whether the firm should resign from the engagement D. Enquire how management intends to address the matter in the financial statements where appropriate Audit and assurance Page 7 of 7 13) Which of the following audit procedures should not be performed to form a conclusion as to whether the financial statements require amendment in relation to the unfair dismissal claim? (1) Inspect relevant correspondence with Simson Co's lawyers (2) Write to the finance director to confirm the claim and level of damages (3) Review the post year-end cash book for evidence of payments to the finance director (4) Request that management confirm their views in a written representation A. 1,2 and 3 B. 1,2 and 4 C. 1,3 and 4 D. 2 only 14) You are drafting the auditor's report for Simson C0 and the audit engagement partner has reminded you that the report will need to reflect the requirements of ISA 701 Communicating Key Audit Matters in the Independent Auditor's Report. According to ISA 701, which of the following should be included in the 'Key Audit Matters' paragraph in the auditor's report? A. All matters which were communicated to those charged with governance B. Matters which result in a modification to the audit opinion C. Summary of the significant matters identified during the audit. D. All matters which are considered to be material to the financial statements 15) Which of the following audit opinions will be issued if the unfair dismissal case is NOT adjusted for or NOT disclosed within the financial statements? A. A qualified audit opinion as the financial statements are materially misstated B. A qualified audit opinion as the auditor is unable to obtain sufficient appropriate evidence C. An unmodified opinion with an emphasis of matter paragraph D. An unmodified audit opinion