The auditing firm of BDO & Associates employed two recent graduates, Julia and Aaron, who wereassigned to work with an audit team currently auditing the books of aclient who operates alargedepartment storewith several small retail outlets in large cities.The senior auditor, Mr. Terrylonge, mentioned that inventory, accounts payables and accounts receivables were possible areas for inherent risks and control risks; therefore, the audit team must ensure that sufficient audit evidences are collected in these areas.Mrs Walder, another senior member of the audit engagement team, implore the junior auditors toensure that they minimize material errors and detection risks by ensuring that adequate samplingis done using substantive testing and analytical review techniques.

QUESTIONS

A.The senior auditors mentioned three types of audit risks, inherent, control and detectionrisks, briefly explain the meaning for each risk.(9 marks)

B.Explainthe relationship between risk and audit evidence.(6 marks)

C.Outline how risk and materiality are integrated in the audit process in relation to accounts receivables.(10marks)

D.Identify three risks associated with each of the following:

i.inventory.

ii.Accounts payable

iii.Accounts receivable(9 marks)

E.Distinguish between substantive testing and analytical review techniques.(6 marks

An audit can be carried out on an entity that is large or small. Whatever the size of the entity,

performance of theaudit is conducted by following certain key procedures each of which is

vital to the overall process.

A.Describe TWO (2) important procedures an auditor would carry out for each of the following audit stages:

i.Background research

ii.Preparation of the audit plan

iii.Accounting system review

iiii.Analytical review of financial statements(12 marks)

B.Describe three tests you would carry out to check the

i.correctness of sales cut-off.(6 marks)

ii.reasonableness of the provision for bad and doubtful debts.(6 marks)

C.With the use of appropriate examples, explain the meaning of 'reliability' and 'relevance' of audit evidence.(6 marks)