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PR Co. designs and manufactures specialised furniture for offices in and around the city of Mumbai. The revenue has been gradually increasing over the last

PR Co. designs and manufactures specialised furniture for offices in and around the city of Mumbai. The revenue has been gradually increasing over the last few years. The main concern for PR Co is finding credit-worthy customers who will make the payment on due dates. You are assigned as the audit team member to test the controls in sales and purchase system of the entity. The year end of the entity is 31 March 2018. One of the control objectives of the sales system of PR Co is to ensure that goods and services are sold to credit-worthy customers.

Which of the following control activities would assist the entity in achieving this objective?

  1. All sales orders above Rs.10 lakh is based on authorised price lists.
  2. Credit limits for all the customers are checked before sales orders are accepted.
  3. Overdue debts are chased each month by the credit controller.
  4. The aged-debt listing is reviewed by the finance director of PR Co on a monthly basis.

You are an audit manager of DC & Co and you are currently responsible for the audit of Beautypal Co, a company which develops and manufactures health and beauty products and distributes these to wholesale customers. Its draft profit before tax is Rs.43 lakhs and total assets are Rs.38 lakhs for the financial year ended 31 March 2018. The final audit is due to commence shortly, and the following matter has been brought to your attention:

Beautypal Co has a large portfolio of property, plant and equipment (PPE). In January 2018, the company carried out a full review of all its PPE and updated the useful lives, residual values, depreciation rates and methods for many categories of asset. The finance director felt the changes were necessary to better reflect the use of the assets. This resulted in the depreciation charge of some assets changing significantly for this year.

Which of the following substantive procedure should the auditor perform to obtain sufficient and appropriate audit evidence in relation to matter of depreciation on property, plant and equipment?

Review the capital expenditure budgets for the next few years to assess whether the revised asset lives correspond with the planned period until replacement of the relevant asset categories.

Inspect non-current asset accounts for a sample of purchases to ensure they have been properly allocated.

Consider whether the proceeds on disposals of PPE are reasonable and recalculate the profit or loss disposal.

(d). For a sample of fully depreciated assets, inspect the register to ensure no further depreciation is charged.

As an internal auditor of LMN Bank Ltd., you have to verify the vouchers for the quarter ending 30th June 2018 of a branch at Ahmedabad. While verifying the vouchers, your team noticed that many ofthe bearer cheques processed by the teller have not been stamped as "paid", when discussed with the branch manager he stated the reason as ignorance on the part of official who has been assigned the duty of verifying the vouchers. As an internal auditor, what should be your next course of action:

  • Considering the matter as immaterial, ignore it for the internal audit report.
  • The Branch manager should be advised to rectify the discrepancy and the observation is closed in the internal audit report noting the corrective action taken.
  • The matter should be immediately reported to those charged with governance of LMN Bank Ltd.
  • Report the matter in Executive summary paragraph of Internal Audit Report as it is a significant internal control lapse.

ALM Ltd. is a trading company engaged in the business of selling readymade garments with a turnover of around Rs. 85 crore in the year 2017-18. Your firm has been appointed as statutory auditors for the year 2018-19. In the process of audit for the half year ending 30th September, 2018 your senior has instructed you to verify the debtors of the company. While verifying the same it came to your notice that the company is not taking balance confirmations from the debtors and the balance shown in the books of company is considered final for the preparation of accounts. As a statutory auditorwhat should be your decision on the debtors balances:

  • Statutory auditor should review the internal audit report and ensure as per section 143 of the Companies Act, 2013 that the company has adequate internal financial controls in place.
  • There is no need to take debtors confirmation as it is immaterial for the purpose of Audit Report.
  • The auditor is required to take external confirmation independently and wherever the auditor gets negative or no response or the response is doubtful an alternative audit procedure should be followed.
  • A management representation letter should be obtained by the auditor.

As a Central Statutory auditor of KG Ltd. for the year 2018-19 you need to verify the bank balances for the half year ending 30th September 2018. The company is holding Bank accounts in five different banks, but you found that the bank reconciliation is not complete for some of the bank accounts. When discussed with the management they explained that the number of transactions in these accounts is very huge on daily basis and there are some old entries (existing in the reconciliation statement from the year 2008 and they are not material in nature) so it is difficult to reconcile these bank accounts. Asa Central Statutory Auditor what will be your decision:

  • The unusually old outstanding entries, as are not material in nature, should be removed from reconciliation statement and the balance in books of accounts should be considered as the balance for the balance sheet purpose.
  • The auditor should confirm the appropriateness of the old outstanding entries by taking bank confirmations for the same to reduce audit risk and obtain a management representation letter on pending reconciliation.
  • The auditor should disclose the matter in Notes to accounts of the audit report with respect to incomplete bank reconciliation.
  • The auditor should communicate it to those charged with governance as deficiency in internal control.

You are an article assistant in PQR & Associates. You are assigned an internal audit of X Ltd., a leading company in business of dairy products. While evaluating internal controls associated with related party relationships and transactions, you come across some discrepancies. What is the basic information to be collected by you related to related party relationships and transactions?

  • The identity of the entity's related parties including changes from the prior period
  • The nature of the relationships between the entity and these related parties
  • Understanding of business activities of related parties
  • Whether the entity has entered into any transaction with these related parties during the period and, if so, the nature and extent, and the purpose of the transaction

Materiality of related party transactions

  • i, ii & v
  • i, ii & iv
  • ii, iii & iv
  • iii, iv & v

AMS & Co is a computer hardware specialist and has been trading for over 6 years. The company is funded through overdrafts and loans and by several large shareholders. The financial year end is 31 March 2017.

AMS had significant growth in business in previous years; however, in the current year a new competitor BOM & Co, has entered the market and through competitive pricing has gainedconsiderable market share from AMS. One of AMS's customers has stopped trading with them and has moved its business to BOM. In addition, a few specialist developers have left the company and joined the new company BOM. AMS has found it difficult to replace these employees due to the level of their skills and knowledge. AMS has just received notification that its main supplier who provides the company with specialist electrical equipment has ceased to trade.

Which of the following audit procedures should NOT be performed in assessing whether or not AMS is a going concern?

  • Evaluating management's plans for the future of the business, by finding out from the financial director whether the company has gained any new customers to replace the customers lost
  • Review board meeting minutes for evidence of progress on recruiting specialist developers to replace the ones who have left to join BOM.
  • Analyse and discuss the entity's last 2 years of financial statements to determine whether it is

consistent with the cash flow forecast.

  • Review the correspondence with the shareholders to assess the probability that any of the shareholders choose to increase or sell their investment

ASM Motor Cars co. manufactures a range of motor cars and its year end is 31 March 2018. You are the audit supervisor of Khanna & Associates and currently preparing the audit programmes for the year-end audit of ASM. The entity undertakes continuous production of cars, 24 hours a day, seven days a week. An inventory count is to the undertaken at the year end and Khanna & Associates will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. ASM values WIP according to percentage of completion, and standard costs are then applied to these percentages.

  • Which of the following is NOT a substantive procedure the audit could perform to obtain sufficient and appropriate audit evidence in relation to the valuation of work in progress?
  • Discuss with management how the percentage completions are attributed to WIP
  • Observe the procedures carried out in the count in assessing the level of WIP; consider reasonableness of the assumptions used
  • During the count, verify all the percentage completions if they are in accordance with ASM's

policies

  • Review the level of variances between standard and actual costs

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