The following scenario relates to questions 1–4.

Scenario

You are an audit manager in a medium-sized audit firm. You are currently planning the audit of Flowers Anytime (Flowers) for the year ended 31 March 20X7. Flowers, a traditional flower wholesaler, is a new audit client for your firm.

As this is the first year you are auditing Flowers, it is necessary to understand and evaluate the company's system of internal control. The audit firm's policy requires the following steps to be taken when performing first year audits:

1. Perform walkthrough tests
2. Complete flowcharts and internal control evaluation questionnaires
3. Revise the audit strategy and audit plan
4. Perform tests of control

You have obtained the following background information about your new client. When customers call the company, their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be delivered, and the account details of the customer. The clerks input these details into the company's computer system (whilst the order is being taken) which is integrated with the company's inventory control system.

The audit junior has made the following notes on the system for the receipt, processing and recording of the orders:

1. All orders are recorded on pre-printed, three-part sequentially numbered order forms. One copy is kept by the sales clerk, one copy is forwarded to the warehouse for the dispatch of inventory, and one copy is sent to the customer as evidence of the order.
2. The sales clerk regularly performs reviews of the standing data on the system, matching the price of flowers against an up to date price list.
3. To ensure completeness of orders, a sequence check is performed on the sales invoices manually by the sales clerk and any missing documents are investigated.
4. Sales invoices are posted on a weekly basis to the sales day book and accounts receivable ledger.

QUESTION

During the course of the audit, the audit team identified numerous deficiencies in internal control relating to the sales system. The amounts exposed to the deficiencies were high and you have concluded that it is likely that the deficiencies would result in material misstatements in the financial statements. A deficiency was also identified in the purchases system but further investigation showed this to be a minor, isolated issue.

Which of the following statements is correct regarding the deficiencies which must be included in the report to management?

The following scenario relates to questions 1–4.

Scenario

You are an audit manager in a medium-sized audit firm. You are currently planning the audit of Flowers Anytime (Flowers) for the year ended 31 March 20X7. Flowers, a traditional flower wholesaler, is a new audit client for your firm.

As this is the first year you are auditing Flowers, it is necessary to understand and evaluate the company's system of internal control. The audit firm's policy requires the following steps to be taken when performing first year audits:

1. Perform walkthrough tests
2. Complete flowcharts and internal control evaluation questionnaires
3. Revise the audit strategy and audit plan
4. Perform tests of control

You have obtained the following background information about your new client. When customers call the company, their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be delivered, and the account details of the customer. The clerks input these details into the company's computer system (whilst the order is being taken) which is integrated with the company's inventory control system.

The audit junior has made the following notes on the system for the receipt, processing and recording of the orders:

1. All orders are recorded on pre-printed, three-part sequentially numbered order forms. One copy is kept by the sales clerk, one copy is forwarded to the warehouse for the dispatch of inventory, and one copy is sent to the customer as evidence of the order.
2. The sales clerk regularly performs reviews of the standing data on the system, matching the price of flowers against an up to date price list.
3. To ensure completeness of orders, a sequence check is performed on the sales invoices manually by the sales clerk and any missing documents are investigated.
4. Sales invoices are posted on a weekly basis to the sales day book and accounts receivable ledger.

QUESTION

You instruct the audit junior to confirm whether the post is opened by more than one individual.

Over which of the following internal control objectives would this provide assurance?

1. Cash receipts are not misappropriated
2. All cash receipts that occurred are recorded
3. Cash receipts are recorded at the correct amounts in the ledger
4. Cash receipts are posted to the correct receivables accounts and to the general ledger

The following scenario relates to questions 1–4.

Scenario

You are an audit manager in a medium-sized audit firm. You are currently planning the audit of Flowers Anytime (Flowers) for the year ended 31 March 20X7. Flowers, a traditional flower wholesaler, is a new audit client for your firm.

As this is the first year you are auditing Flowers, it is necessary to understand and evaluate the company's system of internal control. The audit firm's policy requires the following steps to be taken when performing first year audits:

1. Perform walkthrough tests
2. Complete flowcharts and internal control evaluation questionnaires
3. Revise the audit strategy and audit plan
4. Perform tests of control

You have obtained the following background information about your new client. When customers call the company, their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be delivered, and the account details of the customer. The clerks input these details into the company's computer system (whilst the order is being taken) which is integrated with the company's inventory control system.

The audit junior has made the following notes on the system for the receipt, processing and recording of the orders:

1. All orders are recorded on pre-printed, three-part sequentially numbered order forms. One copy is kept by the sales clerk, one copy is forwarded to the warehouse for the dispatch of inventory, and one copy is sent to the customer as evidence of the order.
2. The sales clerk regularly performs reviews of the standing data on the system, matching the price of flowers against an up to date price list.
3. To ensure completeness of orders, a sequence check is performed on the sales invoices manually by the sales clerk and any missing documents are investigated.
4. Sales invoices are posted on a weekly basis to the sales day book and accounts receivable ledger.

QUESTION

Which of the following internal control activities identified in the audit junior's notes would satisfy the objective of preventing/detecting a material misstatement if it is operating effectively?

The following scenario relates to questions 1–4.

Scenario

You are an audit manager in a medium-sized audit firm. You are currently planning the audit of Flowers Anytime (Flowers) for the year ended 31 March 20X7. Flowers, a traditional flower wholesaler, is a new audit client for your firm.

As this is the first year you are auditing Flowers, it is necessary to understand and evaluate the company's system of internal control. The audit firm's policy requires the following steps to be taken when performing first year audits:

1. Perform walkthrough tests
2. Complete flowcharts and internal control evaluation questionnaires
3. Revise the audit strategy and audit plan
4. Perform tests of control

You have obtained the following background information about your new client. When customers call the company, their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be delivered, and the account details of the customer. The clerks input these details into the company's computer system (whilst the order is being taken) which is integrated with the company's inventory control system.

The audit junior has made the following notes on the system for the receipt, processing and recording of the orders:

1. All orders are recorded on pre-printed, three-part sequentially numbered order forms. One copy is kept by the sales clerk, one copy is forwarded to the warehouse for the dispatch of inventory, and one copy is sent to the customer as evidence of the order.
2. The sales clerk regularly performs reviews of the standing data on the system, matching the price of flowers against an up to date price list.
3. To ensure completeness of orders, a sequence check is performed on the sales invoices manually by the sales clerk and any missing documents are investigated.
4. Sales invoices are posted on a weekly basis to the sales day book and accounts receivable ledger.

QUESTION

The audit junior has asked you whether internal control questionnaires (ICQs) should be completed as well as internal control evaluation questionnaires (ICEQs).

Which of the following statements is correct in relation to ICQs and ICEQs?

The following scenario relates to questions 1–5.

SCENARIO

You are an audit manager in the internal audit department of KLE Co, a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre-numbered purchase requisition forms, and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two-part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two-part prenumbered goods received note (GRN).

• Part one is sent to the ordering department, which then forwards the GRN to the accounts department.
• Part two is filed in order of the reference number for the goods being ordered (obtained from the supplier's goods dispatched documentation), in the goods inwards department.

KLE Co's management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out a value for money audit focused on the company's procurement practices.

QUESTION

Which of the following best summarises the meaning of 'efficiency' in the context of a Value for Money audit as requested by KLE Co's management?

The following scenario relates to questions 1–5.

SCENARIO

You are an audit manager in the internal audit department of KLE Co, a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre-numbered purchase requisition forms, and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two-part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two-part prenumbered goods received note (GRN).

• Part one is sent to the ordering department, which then forwards the GRN to the accounts department.
• Part two is filed in order of the reference number for the goods being ordered (obtained from the supplier's goods dispatched documentation), in the goods inwards department.

KLE Co's management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out a value for money audit focused on the company's procurement practices.

QUESTION

KLE Co's management is keen to increase the range of assignments that the company's internal audit undertake.

Which of the following assignments could the internal audit department be asked to perform by management?

The following scenario relates to questions 1–5.

SCENARIO

You are an audit manager in the internal audit department of KLE Co, a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre-numbered purchase requisition forms, and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two-part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two-part prenumbered goods received note (GRN).

• Part one is sent to the ordering department, which then forwards the GRN to the accounts department.
• Part two is filed in order of the reference number for the goods being ordered (obtained from the supplier's goods dispatched documentation), in the goods inwards department.

KLE Co's management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out a value for money audit focused on the company's procurement practices.

QUESTION

As part of your audit of the procurement system, you have recommended that the goods inwards department should ensure that the goods received are valid business purchases, by matching all deliveries to an authorised order form before issuing a GRN.

Which of the following would be an appropriate test of control to confirm that the control is operating effectively?

The following scenario relates to questions 1–5.

SCENARIO

You are an audit manager in the internal audit department of KLE Co, a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre-numbered purchase requisition forms, and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two-part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two-part prenumbered goods received note (GRN).

• Part one is sent to the ordering department, which then forwards the GRN to the accounts department.
• Part two is filed in order of the reference number for the goods being ordered (obtained from the supplier's goods dispatched documentation), in the goods inwards department.

KLE Co's management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out a value for money audit focused on the company's procurement practices.

QUESTION

Which of the following statements are valid recommendations with regards to improving the internal controls for goods received described above?

1. The ordering department should match orders to GRNs and mark orders as closed once all goods have been received, to enable any outstanding orders to be chased up.
2. The first copy of the GRN should be sent directly to the accounts department, without first going through the ordering department, to prevent delays in recording the purchase.
3. The goods inwards department should review the goods for their condition, in order to identify and return any damaged goods.
4. GRNs should be filed in date order or by purchase order number, instead of by the supplier's reference number, to ensure that they can be matched easily to orders.

The following scenario relates to questions 1–5.

SCENARIO

You are an audit manager in the internal audit department of KLE Co, a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre-numbered purchase requisition forms, and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two-part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two-part prenumbered goods received note (GRN).

• Part one is sent to the ordering department, which then forwards the GRN to the accounts department.
• Part two is filed in order of the reference number for the goods being ordered (obtained from the supplier's goods dispatched documentation), in the goods inwards department.

KLE Co's management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out a value for money audit focused on the company's procurement practices.

QUESTION

Which of the following is NOT a likely effect of the deficiencies in the internal control system for ordering described above?

The following scenario relates to questions 1–5.

Scenario

SouthLea Co, your audit client, is a large unlisted construction company (building houses, offices and hotels) employing a large number of workers on various construction sites.

As part of planning for the audit of the financial statements for the year ended 31 December 20X6, you are reviewing the cash wages systems within the company.

The following information is available concerning the wages systems:

1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each day's work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in respect of employee holidays and illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes, and net pay. Every month a wages clerk checks the gross pay and deductions for a sample of employees. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

SouthLea's finance director has mentioned to you that an allegation of suspected fraud had been made against a member of the senior management team during the year. This is currently being investigated by the internal audit team and the finance director hopes that the audit may shed further light on the matter.

SouthLea has an internal audit department of six staff. The chief internal auditor appoints staff within the internal audit department, although the chief executive officer is responsible for appointing the chief internal auditor. The chief internal auditor reports directly to the finance director. The chief internal auditor decides on the scope of work of the internal audit department. SouthLea does not currently have an audit committee.

QUESTION

You have been told by the finance director that the senior management team is looking to upgrade the company's computerised accounting system in a year's time. This is partly because the senior management team believes that due to the increasing size and complexity of the business, the company will need more robust general IT controls in the future.

Which TWO of the following are general IT controls?

The following scenario relates to questions 1–5.

Scenario

SouthLea Co, your audit client, is a large unlisted construction company (building houses, offices and hotels) employing a large number of workers on various construction sites.

As part of planning for the audit of the financial statements for the year ended 31 December 20X6, you are reviewing the cash wages systems within the company.

The following information is available concerning the wages systems:

1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each day's work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in respect of employee holidays and illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes, and net pay. Every month a wages clerk checks the gross pay and deductions for a sample of employees. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

SouthLea's finance director has mentioned to you that an allegation of suspected fraud had been made against a member of the senior management team during the year. This is currently being investigated by the internal audit team and the finance director hopes that the audit may shed further light on the matter.

SouthLea has an internal audit department of six staff. The chief internal auditor appoints staff within the internal audit department, although the chief executive officer is responsible for appointing the chief internal auditor. The chief internal auditor reports directly to the finance director. The chief internal auditor decides on the scope of work of the internal audit department. SouthLea does not currently have an audit committee.

QUESTION

Which of the following recommendations are appropriate in increasing the independence of SouthLea's internal audit department?

1. The chief internal auditor should be appointed by the board of directors.
2. The chief internal auditor should report to the board of directors.
3. The finance director should decide on the scope of the internal audit work.

The following scenario relates to questions 1–5.

Scenario

SouthLea Co, your audit client, is a large unlisted construction company (building houses, offices and hotels) employing a large number of workers on various construction sites.

As part of planning for the audit of the financial statements for the year ended 31 December 20X6, you are reviewing the cash wages systems within the company.

The following information is available concerning the wages systems:

1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each day's work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in respect of employee holidays and illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes, and net pay. Every month a wages clerk checks the gross pay and deductions for a sample of employees. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

SouthLea's finance director has mentioned to you that an allegation of suspected fraud had been made against a member of the senior management team during the year. This is currently being investigated by the internal audit team and the finance director hopes that the audit may shed further light on the matter.

SouthLea has an internal audit department of six staff. The chief internal auditor appoints staff within the internal audit department, although the chief executive officer is responsible for appointing the chief internal auditor. The chief internal auditor reports directly to the finance director. The chief internal auditor decides on the scope of work of the internal audit department. SouthLea does not currently have an audit committee.

QUESTION

Which of the following statements about the responsibilities of external and internal auditors with regards to fraud is NOT correct?

The following scenario relates to questions 1–5.

Scenario

SouthLea Co, your audit client, is a large unlisted construction company (building houses, offices and hotels) employing a large number of workers on various construction sites.

As part of planning for the audit of the financial statements for the year ended 31 December 20X6, you are reviewing the cash wages systems within the company.

The following information is available concerning the wages systems:

1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each day's work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in respect of employee holidays and illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes, and net pay. Every month a wages clerk checks the gross pay and deductions for a sample of employees. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

SouthLea's finance director has mentioned to you that an allegation of suspected fraud had been made against a member of the senior management team during the year. This is currently being investigated by the internal audit team and the finance director hopes that the audit may shed further light on the matter.

SouthLea has an internal audit department of six staff. The chief internal auditor appoints staff within the internal audit department, although the chief executive officer is responsible for appointing the chief internal auditor. The chief internal auditor reports directly to the finance director. The chief internal auditor decides on the scope of work of the internal audit department. SouthLea does not currently have an audit committee.

QUESTION

During the previous audit, the audit team had recommended SouthLea's management to ensure that any amendments to standing data on the wages system are reviewed by an authorised manager.

Which of the following is a test of control designed to provide evidence that the recommended internal control is operating effectively?

The following scenario relates to questions 1–5.

Scenario

SouthLea Co, your audit client, is a large unlisted construction company (building houses, offices and hotels) employing a large number of workers on various construction sites.

As part of planning for the audit of the financial statements for the year ended 31 December 20X6, you are reviewing the cash wages systems within the company.

The following information is available concerning the wages systems:

1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each day's work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in respect of employee holidays and illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes, and net pay. Every month a wages clerk checks the gross pay and deductions for a sample of employees. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

SouthLea's finance director has mentioned to you that an allegation of suspected fraud had been made against a member of the senior management team during the year. This is currently being investigated by the internal audit team and the finance director hopes that the audit may shed further light on the matter.

SouthLea has an internal audit department of six staff. The chief internal auditor appoints staff within the internal audit department, although the chief executive officer is responsible for appointing the chief internal auditor. The chief internal auditor reports directly to the finance director. The chief internal auditor decides on the scope of work of the internal audit department. SouthLea does not currently have an audit committee.

QUESTION

In preparation for the audit planning meeting, the audit junior has identified a number of areas requiring audit focus.

Based on the information regarding the wages system, which TWO of the following are likely to introduce the highest risk of material misstatement?

The following scenario relates to questions 1–5.

Scenario

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April.

You are the audit supervisor of Poplar & Co and are developing the audit programmes for Cherry's forthcoming interim audit.

You have ascertained that Cherry purchases its raw materials from a wide range of approved suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested.

Cherry has an internal audit department which has provided you with details of the internal controls around the non-current assets cycle. One such control is that upon receipt of a new asset, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

QUESTION

In relation to the control relating to the receipt of a new asset, which TWO of the following describe the MOST RELIABLE audit procedures which enable the auditor to assess whether this control is operating effectively?

1. Select a sample of capital additions on site, agree that a serial number is recorded on the asset and confirm it is included in the non-current assets register
2. Select a sample of assets recorded on the non-current assets register, confirm that it includes a serial number for each asset and agree the number to the physical asset
3. Inspect the non-current asset register and verify that there are no duplicated serial numbers
4. Observe the receipt of assets to confirm that serial numbers are assigned and recorded

The following scenario relates to questions 1–5.

Scenario

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April.

You are the audit supervisor of Poplar & Co and are developing the audit programmes for Cherry's forthcoming interim audit.

You have ascertained that Cherry purchases its raw materials from a wide range of approved suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested.

Cherry has an internal audit department which has provided you with details of the internal controls around the non-current assets cycle. One such control is that upon receipt of a new asset, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

QUESTION

You now turn your attention to Cherry's non-current assets cycle.

Which of the following statements is correct regarding audit procedures concerning the non-current assets cycle?

The following scenario relates to questions 1–5.

Scenario

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April.

You are the audit supervisor of Poplar & Co and are developing the audit programmes for Cherry's forthcoming interim audit.

You have ascertained that Cherry purchases its raw materials from a wide range of approved suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested.

Cherry has an internal audit department which has provided you with details of the internal controls around the non-current assets cycle. One such control is that upon receipt of a new asset, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

QUESTION

While reviewing Cherry's purchases cycle, you identified that goods received notes for raw material purchases are not sequentially numbered.

Which of the following areas would you consider to be most at risk of material misstatement, as a result of this internal control deficiency?

The following scenario relates to questions 1–5.

Scenario

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April.

You are the audit supervisor of Poplar & Co and are developing the audit programmes for Cherry's forthcoming interim audit.

You have ascertained that Cherry purchases its raw materials from a wide range of approved suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested.

Cherry has an internal audit department which has provided you with details of the internal controls around the non-current assets cycle. One such control is that upon receipt of a new asset, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

QUESTION

Which of the following are the most likely consequences of the internal control deficiency described in the requisition system for raw materials?

1. Fraudulent purchases may be made, leading to funds being diverted to third parties for illegal purposes.
2. Stock-outs may occur, resulting in the company being unable to meet orders and lost revenue.
3. Unnecessary purchases may be made, resulting in excess obsolescent raw materials accumulating in inventory requiring to be written down.
4. Raw materials of poor quality may be purchased, resulting in low quality products being produced, customer goodwill being lost and going concern risks.

The following scenario relates to questions 1–5.

Scenario

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April.

You are the audit supervisor of Poplar & Co and are developing the audit programmes for Cherry's forthcoming interim audit.

You have ascertained that Cherry purchases its raw materials from a wide range of approved suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require authorisation and no reference is made to the current inventory levels of the materials being requested.

Cherry has an internal audit department which has provided you with details of the internal controls around the non-current assets cycle. One such control is that upon receipt of a new asset, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

QUESTION

As part of audit planning, the audit team needs to obtain an understanding of the company's system of internal control. Peter, the audit junior, is unsure what a company's internal control comprises.

Which of the following is NOT a component of an entity's internal control?

The following scenario relates to questions 1–5.

Scenario

You are the audit senior on the interim audit of Swan Co. The company introduced a new system at the beginning of this financial year. You have discussed the new system with the sales director, and have noted the following two points in particular:

1. Existing and new customers input their orders into computerised order forms on Swan Co's website. The order notes the items requested, the billing and sales addresses, and the customer number (if any). The system checks whether goods are in stock and approves the order instantly if so. The order is forwarded automatically to the sales department to be prepared.
2. When an order is ready to send out, the sales department inputs the details into their system, and if it matches the order, a goods outward note is produced and the invoicing department is notified automatically. Staff have experienced multiple issues of goods outward notes not matching on the system, and have often resorted to simply printing the order and using it as a goods outward note. The printed order is then taken to the invoicing department for invoicing.

The partner has requested that you document the new system fully during the interim audit. She wants the system notes to be easy to update, and to contain an element of evaluation of the system.

QUESTION

In the light of the partner's request concerning documentation, you are considering different options for recording the system.

Which of the following recording methods most suits her requirements?

The following scenario relates to questions 1–5.

Scenario

You are the audit senior on the interim audit of Swan Co. The company introduced a new system at the beginning of this financial year. You have discussed the new system with the sales director, and have noted the following two points in particular:

1. Existing and new customers input their orders into computerised order forms on Swan Co's website. The order notes the items requested, the billing and sales addresses, and the customer number (if any). The system checks whether goods are in stock and approves the order instantly if so. The order is forwarded automatically to the sales department to be prepared.
2. When an order is ready to send out, the sales department inputs the details into their system, and if it matches the order, a goods outward note is produced and the invoicing department is notified automatically. Staff have experienced multiple issues of goods outward notes not matching on the system, and have often resorted to simply printing the order and using it as a goods outward note. The printed order is then taken to the invoicing department for invoicing.

The partner has requested that you document the new system fully during the interim audit. She wants the system notes to be easy to update, and to contain an element of evaluation of the system.

QUESTION

Your audit junior is seeking to understand when deficiencies in internal control would be judged to be significant and therefore should be reported to those charged with governance.

Which TWO of the following factors would influence your judgement of whether the control deficiencies identified at Swan are significant?

The following scenario relates to questions 1–5.

Scenario

You are the audit senior on the interim audit of Swan Co. The company introduced a new system at the beginning of this financial year. You have discussed the new system with the sales director, and have noted the following two points in particular:

1. Existing and new customers input their orders into computerised order forms on Swan Co's website. The order notes the items requested, the billing and sales addresses, and the customer number (if any). The system checks whether goods are in stock and approves the order instantly if so. The order is forwarded automatically to the sales department to be prepared.
2. When an order is ready to send out, the sales department inputs the details into their system, and if it matches the order, a goods outward note is produced and the invoicing department is notified automatically. Staff have experienced multiple issues of goods outward notes not matching on the system, and have often resorted to simply printing the order and using it as a goods outward note. The printed order is then taken to the invoicing department for invoicing.

The partner has requested that you document the new system fully during the interim audit. She wants the system notes to be easy to update, and to contain an element of evaluation of the system.

QUESTION

You are reviewing the audit plan for tests of controls over invoicing, which reads:

1. Observe the invoicing clerk to ensure that prices are checked to the official price list.
2. Review a sample of invoices to ensure their numerical sequence.
3. Review a sample of goods out notes to ensure they have been matched to sales invoices.
4. Review a sample of sales invoices to verify evidence that the calculations were checked before they were sent to customers.

Which TWO of the procedures relate to the completeness assertion?

The following scenario relates to questions 1–5.

Scenario

You are the audit senior on the interim audit of Swan Co. The company introduced a new system at the beginning of this financial year. You have discussed the new system with the sales director, and have noted the following two points in particular:

1. Existing and new customers input their orders into computerised order forms on Swan Co's website. The order notes the items requested, the billing and sales addresses, and the customer number (if any). The system checks whether goods are in stock and approves the order instantly if so. The order is forwarded automatically to the sales department to be prepared.
2. When an order is ready to send out, the sales department inputs the details into their system, and if it matches the order, a goods outward note is produced and the invoicing department is notified automatically. Staff have experienced multiple issues of goods outward notes not matching on the system, and have often resorted to simply printing the order and using it as a goods outward note. The printed order is then taken to the invoicing department for invoicing.

The partner has requested that you document the new system fully during the interim audit. She wants the system notes to be easy to update, and to contain an element of evaluation of the system.

QUESTION

Your audit junior has identified four possible risks arising from the use of the printed order as a goods outward note and subsequent hand delivery to the invoicing department.

Which TWO of the below risks arise from the identified system deficiency?

The following scenario relates to questions 1–5.

Scenario

You are the audit senior on the interim audit of Swan Co. The company introduced a new system at the beginning of this financial year. You have discussed the new system with the sales director, and have noted the following two points in particular:

1. Existing and new customers input their orders into computerised order forms on Swan Co's website. The order notes the items requested, the billing and sales addresses, and the customer number (if any). The system checks whether goods are in stock and approves the order instantly if so. The order is forwarded automatically to the sales department to be prepared.
2. When an order is ready to send out, the sales department inputs the details into their system, and if it matches the order, a goods outward note is produced and the invoicing department is notified automatically. Staff have experienced multiple issues of goods outward notes not matching on the system, and have often resorted to simply printing the order and using it as a goods outward note. The printed order is then taken to the invoicing department for invoicing.

The partner has requested that you document the new system fully during the interim audit. She wants the system notes to be easy to update, and to contain an element of evaluation of the system.

QUESTION

In relation to orders received through the website which of the following control objectives is met?