The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

Which TWO of the following procedures are relevant responses to the risk that inventory quantities are misstated by the new computerised inventory system?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

Which of the following statements summarises your key concern regarding the risk relating to the extended credit terms and refusal of certain customers to pay?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

ISA 520 Analytical Procedures states that where analytical procedures identify fluctuations or relationships that are inconsistent with other relevant information or that differ significantly from the expected results, the auditor shall investigate the reason for this.

Which of the following auditor responses to the increase in the receivables collection period of Bridgford is the LEAST relevant?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

You have set the level of materiality for the financial statements as a whole, and now need to determine performance materiality.

Which of the following statements about performance materiality is NOT true?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

The audit manager has requested that you cover a number of specified areas in the audit planning documentation.

Which of the following information would be included in the Detailed audit plan?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of Ovette & Co and your firm has recently been appointed as the auditor to Bridgford Products (Bridgford), a large company which sells televisions, DVD players and Bluray Disc players to electrical retailers.

You are planning the audit for the year ended 31 January 20X9 and your audit manager has asked you to produce both the audit strategy document and the detailed audit plan, including an assessment of materiality.

In order to assist you in your planning work you have visited Bridgford, where you obtained the following information.

Sales have increased during the year ended 31 January 20X9 following a move to attract new customers by offering extended credit. The new credit arrangements allow customers three months' credit, rather than the one-month credit period allowed previously. As a result of this change, you have calculated that the receivables collection period has increased from 49 days to 127 days.

Bridgford installed a new computerised inventory control system, which began operating on 1 June 20X8. Since the inventory control system records both inventory movements and current inventory quantities, Bridgford is proposing to use the inventory quantities on the computer to value the inventory at the year-end rather than carrying out an inventory count.

The production director informed you that in the last month or so there have been reliability problems with the company's products which have resulted in some customers refusing to pay for the products.

As part of the planning process you also undertake a risk assessment. Based on the information you have obtained to date you have identified several audit risks which you feel your team will need to address. The first risk relates to the extended credit terms offered by Bridgford to its customers, and the recent product reliability problems resulting in customers' refusal to pay.

A second audit risk relates to the computerised inventory control system which was implemented on 1 June 20X8. You are concerned about whether data was accurately transferred into the new system, and whether it is sufficiently reliable to determine the quantity of inventory for the yearend financial statements.

QUESTION

The audit manager has requested that you cover a number of specified areas in the audit planning documentation.

Which of the following information would be included in the audit strategy document?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

The audit manager has noted in the detailed audit plan that EuKaRe's control environment may be weak.

Which TWO of the following statements are valid reasons as to why EuKaRe may have a weak control environment?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

Another identified audit risk is the susceptibility of EuKaRe's business to fraud due to the high levels of cash involved.

Use the drop down lists to complete the following sentence to correctly describe the auditor's responsibilities in accordance with ISA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements.

The auditor is not responsible for the _____________ of fraud or error.
However, they are responsible for obtaining ____________ that the financial statements are free from material misstatement whether caused by fraud or error.

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

You have identified several audit risks which you feel your team will need to address. One such audit risk relates to the risk that income may be understated in the financial statements. You are concerned that not all income may be recorded.

Which of the following statements is NOT a valid response to this audit risk?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.

Which of the following statements gives a true explanation of why ISA 315 requires a risk assessment to be carried out at the planning stage?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

Based on your understanding of the nature of EuKaRe, you have identified that income is received primarily in the form of cash and this will affect audit risk.

Which of the following statements regarding the effect on audit risk are FALSE?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs 3 permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to 3 days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

QUESTION

Based on your understanding of the nature of EuKaRe, you have identified that income is received primarily in the form of cash and this will affect audit risk.

Which of the following statements regarding the effect on audit risk are TRUE?

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

You plan to review the legal correspondence relating to the claims made by those customers to whom South sold contaminated meat.

Which TWO of the following are valid objectives of this audit procedure?

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

The audit engagement partner has stated that the new till system may not be reliable.

Which TWO of the following statements represent valid responses to this audit risk?

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

In relation to the capitalised costs of the new till system, you are concerned that South may have included within the capitalised costs some items which are revenue in nature, leading to the overstatement of non-current assets.

Which of the following statements is a valid response to this audit risk?

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

You are about to begin work on the share capital section of the South audit file.

Select the appropriate Financial Statement Assertion for the following Audit Procedure.

• "Review Memorandum and Articles of Association and compare their requirements with issued share capital"

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

You are about to begin work on the share capital section of the South audit file.

Select the appropriate Financial Statement Assertion for the following Audit Procedure.

• "Read minutes of board meetings for evidence of share issues"

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

You are about to begin work on the share capital section of the South audit file.

Select the appropriate Financial Statement Assertion for the following Audit Procedure.

• "Review financial statement notes"

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

You are about to begin work on the share capital section of the South audit file.

Select the appropriate Financial Statement Assertion for the following Audit Procedure.

• "Recalculate the closing balance on the share capital account"

The following scenario relates to questions 1–8.

Scenario

You are an audit senior of KLT & Co, and your firm has recently been appointed as the auditor to South, a private company that runs seven supermarkets in the UK. You are currently planning your firm's audit of South and are shortly due to make a preliminary visit to South's head office.

Four months before the year end, the company installed a new till system in all supermarkets. The new till system is linked to the accounting system at head office and automatically posts transactions to the accounting system. Previously journals were made manually based on totals on till rolls. The cost of the new till system which South has capitalised as a non-current asset.

The audit engagement partner has also said that she has is concerned that the new till system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. She is also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.

Finally, after a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding $1m in compensation.

QUESTION

Indicate which TWO of the following statements describe the objectives of planning the audit of South.

The following scenario relates to questions 1–5.

Scenario

You are an audit senior of IBN & Co and you are planning the audit of Mason Air Services Co (Mason) for the year ended 31 December 20X3.

Mason is a company that provides specialist helicopter support to public services, such as the police force and the ambulance service. Mason has four of these contracts, which contain very similar terms and are equal in value. Mason owns and maintains the helicopter fleet which is held at cost. Each aircraft carries specialist equipment and is operated by a highly skilled specialist pilot. Under the terms of these contracts Mason charges the customer an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.

Mason has not purchased any new helicopters during the year to 31 December 20X3; however, there has been a lot of refitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place.

The original purchase of each aircraft was funded with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank has indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when, in the wake of government cuts, the police are trying to substantially reduce the amount they pay. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.

Approximately one-quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continues to be recognised at amortised cost.

QUESTION

In relation to the aircraft spares held by Mason, indicate which of the following correctly describe areas of audit concern?

The following scenario relates to questions 1–5.

Scenario

You are an audit senior of IBN & Co and you are planning the audit of Mason Air Services Co (Mason) for the year ended 31 December 20X3.

Mason is a company that provides specialist helicopter support to public services, such as the police force and the ambulance service. Mason has four of these contracts, which contain very similar terms and are equal in value. Mason owns and maintains the helicopter fleet which is held at cost. Each aircraft carries specialist equipment and is operated by a highly skilled specialist pilot. Under the terms of these contracts Mason charges the customer an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.

Mason has not purchased any new helicopters during the year to 31 December 20X3; however, there has been a lot of refitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place.

The original purchase of each aircraft was funded with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank has indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when, in the wake of government cuts, the police are trying to substantially reduce the amount they pay. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.

Approximately one-quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continues to be recognised at amortised cost.

QUESTION

Which TWO of the following are valid responses to the fact that Mason's contract with the police force is due for renewal?

The following scenario relates to questions 1–5.

Scenario

You are an audit senior of IBN & Co and you are planning the audit of Mason Air Services Co (Mason) for the year ended 31 December 20X3.

Mason is a company that provides specialist helicopter support to public services, such as the police force and the ambulance service. Mason has four of these contracts, which contain very similar terms and are equal in value. Mason owns and maintains the helicopter fleet which is held at cost. Each aircraft carries specialist equipment and is operated by a highly skilled specialist pilot. Under the terms of these contracts Mason charges the customer an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.

Mason has not purchased any new helicopters during the year to 31 December 20X3; however, there has been a lot of refitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place.

The original purchase of each aircraft was funded with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank has indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when, in the wake of government cuts, the police are trying to substantially reduce the amount they pay. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.

Approximately one-quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continues to be recognised at amortised cost.

QUESTION

In relation to Mason's secured loan, which is the MOST important audit risk that should be documented in the detailed audit plan?

The following scenario relates to questions 1–5.

Scenario

You are an audit senior of IBN & Co and you are planning the audit of Mason Air Services Co (Mason) for the year ended 31 December 20X3.

Mason is a company that provides specialist helicopter support to public services, such as the police force and the ambulance service. Mason has four of these contracts, which contain very similar terms and are equal in value. Mason owns and maintains the helicopter fleet which is held at cost. Each aircraft carries specialist equipment and is operated by a highly skilled specialist pilot. Under the terms of these contracts Mason charges the customer an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.

Mason has not purchased any new helicopters during the year to 31 December 20X3; however, there has been a lot of refitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place.

The original purchase of each aircraft was funded with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank has indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when, in the wake of government cuts, the police are trying to substantially reduce the amount they pay. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.

Approximately one-quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continues to be recognised at amortised cost.

QUESTION

Given the large amount of refitting of existing aircraft, you are concerned that property, plant and equipment may be overstated in the financial statements.

Indicate which TWO of the following statements represent valid responses to this audit risk?

The following scenario relates to questions 1–5.

Scenario

You are an audit senior of IBN & Co and you are planning the audit of Mason Air Services Co (Mason) for the year ended 31 December 20X3.

Mason is a company that provides specialist helicopter support to public services, such as the police force and the ambulance service. Mason has four of these contracts, which contain very similar terms and are equal in value. Mason owns and maintains the helicopter fleet which is held at cost. Each aircraft carries specialist equipment and is operated by a highly skilled specialist pilot. Under the terms of these contracts Mason charges the customer an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.

Mason has not purchased any new helicopters during the year to 31 December 20X3; however, there has been a lot of refitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place.

The original purchase of each aircraft was funded with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank has indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when, in the wake of government cuts, the police are trying to substantially reduce the amount they pay. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.

Approximately one-quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continues to be recognised at amortised cost.

QUESTION

In relation to the specialist helicopter support contracts, which of the following statements summarises a key audit risk?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager of Rivers & Co. Your firm has been invited to tender for the audit of Severn Co, a listed company. Your firm does not have any other listed clients, and Severn Co will represent the biggest client of your firm (by client annual revenue) if your tender is successful.

A member of the audit committee of Severn Co informed your audit engagement partner that the current auditors were not being invited to stand for re-election as the audit committee felt that the relationship between the firm and the company had begun to lose objectivity due to overfamiliarity. You have reviewed past financial statements of Severn Co and have noted that the company applies IFRS, and that the audit committee reports on its responsibilities with regard to internal control annually. The director confirmed that the board would be happy to confirm their responsibilities in writing with Rivers & Co as they are aware of the relevant audit requirements.

QUESTION

Before accepting the audit of Severn Co, Rivers & Co should _______________ . Once the audit has been accepted, then Rivers & Co should begin to __________________ .

The following scenario relates to questions 1–5.

Scenario

You are an audit manager of Rivers & Co. Your firm has been invited to tender for the audit of Severn Co, a listed company. Your firm does not have any other listed clients, and Severn Co will represent the biggest client of your firm (by client annual revenue) if your tender is successful.

A member of the audit committee of Severn Co informed your audit engagement partner that the current auditors were not being invited to stand for re-election as the audit committee felt that the relationship between the firm and the company had begun to lose objectivity due to overfamiliarity. You have reviewed past financial statements of Severn Co and have noted that the company applies IFRS, and that the audit committee reports on its responsibilities with regard to internal control annually. The director confirmed that the board would be happy to confirm their responsibilities in writing with Rivers & Co as they are aware of the relevant audit requirements.

QUESTION

You are drafting an engagement letter in respect of Severn Co, and are aware that ISA 210 Terms of Audit Engagements requires certain issues to be included.

Indicate which of the following issues must be included in the engagement letter?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager of Rivers & Co. Your firm has been invited to tender for the audit of Severn Co, a listed company. Your firm does not have any other listed clients, and Severn Co will represent the biggest client of your firm (by client annual revenue) if your tender is successful.

A member of the audit committee of Severn Co informed your audit engagement partner that the current auditors were not being invited to stand for re-election as the audit committee felt that the relationship between the firm and the company had begun to lose objectivity due to overfamiliarity. You have reviewed past financial statements of Severn Co and have noted that the company applies IFRS, and that the audit committee reports on its responsibilities with regard to internal control annually. The director confirmed that the board would be happy to confirm their responsibilities in writing with Rivers & Co as they are aware of the relevant audit requirements.

QUESTION

Your firm has tendered for the engagement and has been successful. You have been asked to follow through the acceptance procedures for the firm.

You are reappraising whether it is appropriate for the firm to accept the engagement.

Which of the following issues arising would cause Rivers & Co to decline the engagement?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager of Rivers & Co. Your firm has been invited to tender for the audit of Severn Co, a listed company. Your firm does not have any other listed clients, and Severn Co will represent the biggest client of your firm (by client annual revenue) if your tender is successful.

A member of the audit committee of Severn Co informed your audit engagement partner that the current auditors were not being invited to stand for re-election as the audit committee felt that the relationship between the firm and the company had begun to lose objectivity due to overfamiliarity. You have reviewed past financial statements of Severn Co and have noted that the company applies IFRS, and that the audit committee reports on its responsibilities with regard to internal control annually. The director confirmed that the board would be happy to confirm their responsibilities in writing with Rivers & Co as they are aware of the relevant audit requirements.

QUESTION

You have identified a number of issues which should be considered prior to tendering for a new client.

Given what you already know of Severn Co, which TWO of these are most important to consider further prior to tendering for the audit?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager of Rivers & Co. Your firm has been invited to tender for the audit of Severn Co, a listed company. Your firm does not have any other listed clients, and Severn Co will represent the biggest client of your firm (by client annual revenue) if your tender is successful.

A member of the audit committee of Severn Co informed your audit engagement partner that the current auditors were not being invited to stand for re-election as the audit committee felt that the relationship between the firm and the company had begun to lose objectivity due to overfamiliarity. You have reviewed past financial statements of Severn Co and have noted that the company applies IFRS, and that the audit committee reports on its responsibilities with regard to internal control annually. The director confirmed that the board would be happy to confirm their responsibilities in writing with Rivers & Co as they are aware of the relevant audit requirements.

QUESTION

The audit engagement partner has asked you to prepare some information ready for the tender.

Which of the following items should be included in the tender for the audit of Severn Co?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

QUESTION

Indicate which of the following statements are TRUE regarding the regulation of the audit profession?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

QUESTION

Before NAB & Co can accept appointment as Mickey's auditors it must determine whether the preconditions for an audit are met and obtain management's agreement that it acknowledges and understands its responsibilities.

Which of the following is NOT included in the agreement obtained by the auditor?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

QUESTION

From a review of the information above, your audit assistant has highlighted some potential risks to independence in respect of the audit of Goofy.

Which of the following indicating Self-interest Threats?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

QUESTION

From a review of the information above, your audit assistant has highlighted some potential risks to independence in respect of the audit of Goofy.

Which of the following indicating Familiarity Threats?

The following scenario relates to questions 1–5.

Scenario

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

QUESTION

The ACCA Code of Ethics and Conduct requires that an external auditor implement appropriate safeguards to ensure that a conflict of interest is properly managed.

Which TWO of the following actions should NAB & Co take regarding the potential confidentiality issue?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

Indicate which of the following are FALSE of UYE & Co’s policies regarding the assembly and retention of audit files.

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

Carlise’s internal audit team is likely to be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

UYE & Co may use the internal audit department to provide direct assistance to it in the audit of this system.

Indicate which of the following statements are TRUE, if direct assistance is used?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

Which of the following considerations is the MOST important when deciding whether or not to rely on the work performed by Carlise's internal audit department?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

During the interim audit, you performed internal controls testing and the results of these indicate that, to date, the control environment is strong and internal controls are operating effectively.

James has asked you to explain the factors that will determine the extent of further work on internal controls that will need to be performed at the final audit.

Which of the following should be taken into account when determining the extent of the additional work needed at the final audit?

1. The significance of the assessed risks of material misstatement at the assertion level
2. The specific controls that were tested during the interim period, and significant changes to them since they were tested, including changes in the information system, processes, and personnel
3. The length of the remaining period

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

Which of the following Audit Procedures will be conducted during Final Audit?

The following scenario relates to questions 1–6.

Scenario

You are an audit senior of UYE & Co and your firm is the external auditor of Carlise, a large private company that runs major sports venues in the UK. Carlise has a year end of 31 December and you are currently planning the interim audit of Carlise for the six months ended 30 June 20X4.

This year you will have another audit senior, James, who has recently joined UYE & Co, working with you. James did not work on any interim audits with his previous audit firm, and your audit manager has asked you to train him to use the different approach used in interim audits.

James has drawn up the following list of audit procedures:

1. Update documentation relating to Carlise's accounting systems which has been prepared in prior year audits.
2. Obtain third-party confirmations relating to receivables, payables and cash at bank.
3. Review the directors' assessment of whether Carlise is a going concern. Consider whether the assumptions made by the directors are reasonable and whether it is appropriate to prepare the accounts on the going concern basis.
4. Perform preliminary analytical procedures in order to identify any major changes in the business or unexpected trends.

In July 20X4 Carlise established an internal audit department. The board is still planning the exact responsibilities the internal audit department will have, but it is likely that, among other things, they will be involved in monitoring the internal controls relating to Carlise's online ticket sales system.

It is the policy of UYE & Co that audit files for both interim and final audits are assembled within 60 days of the date when the auditor’s report was signed. The files are then locked and cannot be amended after this date, but it is sometimes deemed necessary for further minor procedures to be added to the files after the auditor’s report is issued. The files are then retained for 3 years, at which time they are disposed of securely.

QUESTION

Which of the following Audit Procedures will be conducted during Interim Audit?