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prepared by one of your audit assistant colleagues. During your review you note the following situations which are to be considered independently of each other:

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prepared by one of your audit assistant colleagues. During your review you note the following situations which are to be considered independently of each other: a) A test of controls of 100 sales transactions was undertaken which resulted in 7 errors. The working papers noted that none of the errors found was material and the conclusion from conducting the test was that: the system is operating satisfactorily' . b) Creditors is a major balance sheet item comprising 15 large and 180 small creditors. Your client presented the audit junior with a list of creditors making up the balance shown in the creditors control account in the general ledger. In your absence the audit junior decided to utilize a judgmental sampling technique to test these creditors. The only procedure the junior used was to randomly select 25 creditors from the listing. These were vouched to source documents. c) Happy Club is in a tax loss situation. The tax section of the audit file includes a letter of representation from the directors stating: The company is likely to return to profitability next year and consequently we believe it appropriate that a Future Income Tax Benefit be brought to account in respect of the tax losses.' In auditing the Future Income Tax Benefit the audit junior has relied solely on the above representation. d) Happy Club is currently in dispute with the taxation authorities. This year an assessment was issued by the taxation authorities requiring the company to pay an additional $80,000 in taxes. Happy Club believes that the basis for the assessment was incorrect and inappropriate. Notwithstanding this it paid the $80,000 to the taxation authorities under protest and lodged a formal objection against the assessment. Happy Club is carrying forward the $80,000 paid as an 'other debtor' in its year end accounts. The audit junior has verified this other debtor by agreeing it to the cash payments book and the bank statement. e) A circularization of trade debtors was undertaken using statistical sampling (monetary unit sampling in this case). Of a sample of 66, five errors were noted. The conclusion in the audit working papers was that the errors were not material and consequently the 'proof of existence' objective of the test was satisfied Required: i ) In respect of each situation, what queries or comments would you raise with your audit junior? Indicate, where applicable, any additional work that needs to be carried out. [20 marks] ii) List and explain the approaches included in the standards (ISA 540) for obtaining sufficient appropriate audit evidence in regards to accounting estimates.[5 marks]

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