You are the audit senior on the audit of Flashback plc, the company that produces and sells various video games, either on CDs or online. Flashback plc is profit oriented entity which is listed on recognised stock exchange. The company has made a net profit of 5 m in the year ended 31 Dec 20x8 (the year under audit), which was in line with the profit earned during previous years. The corporation tax paid for the year was 1m. Flashback plc has a significant inventory and intangible assets balances. As the team member of this audit, you was allocated the following sections to perform required audit procedures: inventory, intangible assets and revenue.

1. What will be the relevant assertions from listed below for Intangible assets that you will be planning to test? You should consider the underlying audit risks within this account.

i. Valuation

ii. Cut-off

iii. Existence

iv. Completeness

v. Rights and obligations.

A. i.; ii. and iv.

B. i.; iii. and v.

C. i.; ii. and iv.

D. All assertions are relevant.

E. i. only.

2. What audit procedures are relevant to confirm existence of inventory?

i. Attend year end full inventory count.

ii. Perform inventory cut-off procedures by looking at additions to inventory around year end (immediately before and after).

iii. Obtain the invoices for inventory additions or calculate the cost of production and compare the cost to net realisable value.

iv. Perform procedures to check the existence of slow-moving items.

A. i. and ii.

B. i. and iv.

C. i. and iii.

D. ii. and iii.

E. ii. and iv.

3. Calculate materiality and performance materiality for the current year, using 2% of operating profit. The performance materiality was determined as 25% shortcut of materiality.

A. M: 100,000; PM: 25,000

B. M: 100,000; PM: 75,000

C. M: 120,000; PM: 90,000

D. M: 80,000; PM: 60,000

E. M: 80,000; PM: 20,000

4. Which procedures will you perform to cover cut-off of revenue?

i. Obtain the list of credit notes issued post year end, and agree to the supporting documentation.

ii. Obtain the list of sales made around the year end and agree to the supporting documents to ensure they are recorded in the correct period.

iii. Obtain the details of last goods despatched notes issued at the very year end and just post the year end.

A. i. only

B. ii. only

C. iii. only

D. i. and ii.

E. i.; ii. and iii

5. You are planning to select a sample of 20 sales invoices by selecting the 10 largest invoices and 10 invoices haphazardly. What will be the name of this sampling method?

A. Stratification

B. Sequence selection

C. Haphazard sampling

D. Random sampling

E. Monetary unit sampling