Q.1

Below are listed three internal controls. State the assertion at which each one is aimed.

(i) The client uses prenumbered documents for purchases. Periodically a clerk performs a sequence check.

(ii) Sales are subject to a credit check before they are processed.

(iii) A second clerk check that account codings on source documents are inaccordance with the entity's chart of accounts.

Q.2

Select the correct option for each of the following four multiple choice questions

Question (i)

After obtaining an understanding of internal control and assessing control risk of an entity an auditor decided to perform tests of controls. The auditor most likely decided that:

AThe available evidence obtained through tests of controls would not support an assessment of control risk as high.

BIt would be inefficient to perform tests of controls given they would not result in reduced substantive tests.

CThe assessed level of inherent risk exceeded the assessed level of control risk.

DControl risk should be assessed as low for key financial report assertions.

Question (ii)

When control risk is assessed as less than high, tests of control should be undertaken with regard to?

ADesign of internal control.

BEffectiveness and continuity of controls that have been determined to exist.

CBoth design and operation of internal control.

DBoth the control environment and the entity's risk assessment process.

Question (iii)

Which of the following audit tests would be regarded as test of controls?

APerforming bank reconciliations for the client's trading account.

BObserving the client's warehouse staff checking shipments.

CSending an external confirmation to a debtor to check the outstanding balance at year end.

DCounting inventory and checking that the quantity is accurately recorded in the inventory records.

Question (iv)

Which of the following is the most effective control activity to detect vouchers that were prepared for the payment of goods that were not received?

ACompare goods received with goods requisitioned in the receiving department.

BCount goods upon receipt in the storeroom.

CVerify vouchers for accuracy and approval in the internal audit department.

DMatch purchase order, receiving report and supplier's invoice for each voucher in the accounts payable department.

Q.3

Answer the following questions:

(i)For what purpose would an auditor perform a walk-through of transactions?

(ii)State one procedure an auditor could use to gain an understanding of the control environment.

(iii)Is the following statement True or False?

An auditor will perform substantive tests only when the preliminary assessment of internal controlsindicates that control risk is high.

Q.4

Below are stated two internal controls and the corresponding tests of the controls. Treating each pair separately, specify the starting point for the test of control and the information used for verification.

Internal Control A: Sales are processed only when the Credit Manager has performed a credit check. The Credit Manager evidences her performance of this internal control by signing the Sales Order.

Test of Control A: The auditor examined a sample of Sales Orders for evidence that they had been approved by the Credit Manager.

Internal Control B:Shipping Orders are prenumbered and periodically a Clerk account for a sequence. She evidences this by initialing the Shipping Order.

Test of Control B: The auditor examined a sequence of prenumbered Receiving Reports for evidence that the sequence had been reviewed by one the client's staff

Q.5

Answer the following questions:

(i)State the names of the three documents that are matched when reviewing a payment to a supplier.

(ii)State the internal control that is put in place to ensure that credit card usage is within required limits.

(iii)State the internal control that is put in place to prevent that classic disbursement fraud.

(iv)Which one of the following audit procedures would not be used when performing a test of controls:

A: Reperformance

B: Inspection

C: External confirmation

D: Observation