Tag (SQ): Audit Procedures

Search 500 + past questions and counting.
Sort & Filter

Reset filters

Search

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

  • 15 Marks

AAA – L3 – Q63 – Audit-related services

Assess audit procedures and alternative audit opinions for Maris Vintages' going concern status due to loan repayment issues.

You are the audit manager in charge of the audit of Maris Vintages, a company which imports and distributes palm wine. In recent years the company has become less profitable due to the large range of palm wines now carried by supermarkets. The draft financial statements for the year ended 30 November 20X8 show that current liabilities exceed current assets by $200,000.
The company’s major source of finance is a bank loan of $500,000 which is due for repayment in full on 31 October 20X5. The company is currently negotiating with its bankers for a replacement long-term loan of $1 million. They intend to use some of the loan to reposition themselves in the marketplace to establish the superiority of their wines over those sold in supermarkets.
The directors submitted a profit forecast with their loan application and are optimistic that their application will be successful. However, they do not expect negotiations to be completed before the annual general meeting in March. Your firm has been asked not to approach the bank directly.

Required
(a) Set out the audit procedures you would perform in order to establish the ability of Maris Vintages to continue as a going concern.
(b) Discuss the alternative audit opinions that might be relevant to the financial statements of Maris Vintages together with the circumstances in which each would be appropriate.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – L3 – Q63 – Audit-related services"

  • 12 Marks

AAA – L3 – Q61 – Audit Evidence

Discuss reliability of directors' written representations and actions if directors refuse to sign, focusing on revenue and expenditure.

You are the external auditor of Jonas Healthcare Services Co.
A written representation letter has been prepared in which the directors have been asked to confirm that all revenue has been included in the financial statements and that when there is weak evidence of expenditure, the expenditure has been for the benefit of the company and not for the personal benefit of any employee or director.
Required
(a) Discuss the reliability of audit evidence provided by directors in the written representation letter and whether you should rely wholly on the representations of the directors or whether you should obtain other evidence.

(b) Describe the action you would take and the conclusions you would reach if the directors refused to sign a written representation letter. Your answer should specifically consider the statements in the letter concerning completeness of revenue and validity of expenditure.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – L3 – Q61 – Audit Evidence"

  • 15 Marks

AAA – L3 – Q60 – Evaluation and review

Identify further information needed to assess Jemila Foods' going concern status due to supplier financial difficulties.

Jemila Foods has been in existence, importing foodstuffs such as rice, for a number of years. The managing director had built up the business using contacts he already had in the industry. The company imports only one brand of food which is manufactured exclusively by one company which is based in Bharat. The food is distributed via ‘shops within shops’ at 20 branches of a well-known store. Under this minimum annual payment of $10,000 per store.

The audit is nearing completion but you have just heard that the Bharat manufacturer is facing serious financial difficulties and that supplies have ceased.

Required:

(a) Set out the further information the auditor would require before reaching his audit opinion.                                                                  (b) Set out the possible forms of report that the auditor may issue.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – L3 – Q60 – Evaluation and review"

  • 10 Marks

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

You are responsible for the audit of Asante Co, a limited liability company, for the year ended 31 December 20X8. The principal activity of Asante Co is the provision of high-quality packaging services for manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year.

Historically, the packaging process was labour-intensive, but in September 20X8, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a covenant specifying that the company’s debt:equity ratio should not exceed 1:1.

A comparison of the draft financial statements for the year ended 31 December 20X8 with the previous year indicates a significant increase in revenue with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency and reduction in labour costs will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind with its payments to the taxation authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last 3 months’ instalments.

Required:

(a) Identify, and explain, from the information provided above, factors which indicate that Asante Co may not be a going concern.  (b) Outline the matters to which you would direct your attention in the period after the end of the reporting period in order to determine whether Asante Co can continue as a going concern for the foreseeable future.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – L3 – Q59 – Going Concern"

  • 20 Marks

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

Your firm is the external auditor of Elite Tableware Ltd, and you recently attended the year-end inventory count at the company’s warehouse. The company manufactures high quality tableware (plates, cups and saucers etc.) and it maintains an integrated computerised system that shows the inventory held at any point in time.
At the year-end inventory count, reports showing the various categories of inventories (but not the quantities) are printed off the system and the quantities of inventories actually counted are inserted annually by the counters. Later the quantities are compared with those per the computer system.
The count instructions were received by both you and the counters the day before the count was due to take place. The instructions consisted of the following five points:
(1) Counters must arrive at 8 am on the morning of the count.
(2) They will work in teams of two people.
(3) Each team will be assigned a specific area of the warehouse to count. They will receive inventory sheets listing the products to be found in their area.
(4) The inventory sheets are pre-numbered.
(5) Once the counters have finished the inventory count, the inventory sheets must be handed to the warehouse manager.

Your notes from the attendance at the count include the following observations:
Many areas in which the count took place were untidy and inventory was sometimes difficult to find because it was not in the allocated area. The same categories of inventories were sometimes found in several different areas and some inventory was incorrectly labelled.
The count was conducted in a hurry in order to close the warehouse before a public holiday and there were insufficient counters to conduct the count properly in the time available. The issue and receipt of inventory sheets (on which the quantities were recorded by counters) was not properly controlled. It was difficult to reconcile the inventory quantities recorded at the count to the computerised records and some significant differences remain outstanding.
Although no finished goods were dispatched during the inventory count, a large delivery of raw materials was received into the warehouse.
Required:
(a) For the inventory count conducted by Elite Tableware Ltd:
(i) Identify and explain FOUR (4) deficiencies in the count.
(ii) Explain the possible implication of each deficiency and
(iii) Provide a recommendation to address each deficiency.

(b) Describe the audit procedures that auditor should perform at the year end to confirm each of the following:
(i) The existence of inventory

(ii) The completeness of inventory

(iii) The valuation of inventory.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – L2 – Q62 – Audit Evidence"

  • 17 Marks

AA – L2 – Q60 – Audit Sampling

Define sampling risk in the context of audit sampling. List and explain five methods of sample selection used in audit sampling.

Sampling

ISA 530 Audit Sampling defines audit sampling as:
‘The application of audit procedures to less than 100% of the items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.’

Required:

(a) Define sampling risk.
(1 mark)

(b) List five methods of sample selection and explain how they function.
(10 marks)

(c) Which of the above sample selection methods in part (b) would you use if you wanted to maximise the opportunity of having high-value items in your sample? Explain why.
(3 marks)

(d) Define ‘tolerable misstatement’.
(1 mark)

(e) List five situations where sampling may not be appropriate.
(5 marks)

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – L2 – Q60 – Audit Sampling"

  • 10 Marks

AAA – L3 – Q51 – Assurance services

Suggest procedures for reviewing interim financial information of Dablaseem Hospital Company Ltd.

Dablaseem Hospital Company Ltd. prepares its annual financial statements to 31st December each year. Due to the magnitude of the transactions, interim financial statements for each half year are prepared at the end of June every year. This is done to facilitate the early completion and audit of the annual financial statements. Nhwehwem & Associates are the independent financial statement auditors of Dablaseem Hospital Co. Ltd. This year’s interim financial information have been prepared and are ready for review.

You are the audit senior of the auditing firm and the head of the audit team to carry out the review of the interim financial information.

Required:

Suggest the procedures you would use to carry out the review of the interim financial information.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – L3 – Q51 – Assurance services"

  • 20 Marks

AA – L2 – Q57 – Internal Audits

Explain the usefulness of internal audit work, quality factors, and audit evidence for outsourced functions at SkyHigh Airlines.

SkyHigh Airlines is an airline. The company owns some of its fleet of aircraft. Other aircraft are leased from third parties. SkyHigh Airlines has an internal audit function that has recently expanded. Your firm is the external auditor to SkyHigh Airlines. Your firm has been asked to investigate the extent to which it may be able to rely on the work of internal Angelfire International

Required:

(a) Explain why the work of internal auditors, in the three areas noted above, is likely to be useful to you as the external auditor. (9 marks)

(b) Explain how the quality of the internal audit function is likely to influence the extent of your reliance on internal audit work. (5 marks)

(c) Describe the audit evidence you will seek relating to internal controls over the outsourced functions (in-flight catering and payroll). (6 marks)

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – L2 – Q57 – Internal Audits"

  • 20 Marks

AA – L2 – Q55 – Audit Evidence

List and describe six financial statement assertions, excluding completeness, used in auditing financial statements. Describe substantive audit procedures for payroll balances and transactions in Blossom Textiles' financial statements.

Auditors may use two categories of assertions to form a basis for risk assessments and the design and performance of further audit procedures. The two categories suggested by ISA 315 relate to (i) classes of transactions and events and related disclosures and (ii) account balances and related disclosures. One assertion applicable to both categories is completeness: that all transactions, events, assets, liabilities, equity interests and disclosures that should be included, are included in the financial statements.

Required:
(a) List and describe SIX financial statement assertions, other than completeness, used by auditors in the audit of financial statements. (6 marks)

(b) Describe the substantive audit procedures you will perform on:

(i) the payroll balances in the statement of financial position of Blossom Textiles. (7 marks)

(ii) the payroll transactions in the statement of comprehensive income of Blossom Textiles. (7 marks)

 

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – L2 – Q55 – Audit Evidence"

  • 20 Marks

AA – L2 – Q53 – Audit Procedures for Non-Current Assets

Audit procedures for verifying property, plant, and equipment schedules, additions, revaluation, and depreciation correction for Oakwood Enterprises.

As a staff member of Reed and Spencer Chartered Accountants, you are assigned the audit of tangible non-current assets of Oakwood Enterprises for the year ended 31 March 20X8. Reed and Spencer have been the auditors of Oakwood Enterprises for many years. You obtain the following schedule of movements on property, plant, and equipment and analysis of additions from the company’s accountant.

Property Plant and machinery Total
Cost or valuation C’000 C’000 C’000
1 April 20X7 340 275 615
Additions – 123 123
Disposals – (72) (72)
Revaluations 120 – 120
31 March 20X8 460 326 786
Accumulated depreciation
1 April 20X7 24 213 237
Provision 5 30 35
Written back on disposal – (65) (65)
Adjustment on revaluation (24) – (24)
31 March 20X8 5 178 183
Carrying amount
31 March 20X7 455 148 603
31 March 20X8 316 62 378

Schedule of additions (plant and machinery)

Supplier Description Cost
New Models Milling machine Model 38 55,000
Drill Suppliers Power drill Type 45C 34,000
Hoist Co Electric hoist no 722 18,000
Sundry below $1000 16,000
Total 123,000

The company’s accountant also advises you that the property was revalued following a valuation by the company’s property manager who is a professionally qualified valuer.
During your verification of depreciation, you discover that most plant and machinery is fully depreciated. Moreover, you discover that, due to oversight, depreciation has continued to be provided on fully depreciated items. As at the beginning of the year, the amount of overstatement was $43,000. The accountant suggests the correction be made by reducing the current year’s charge for depreciation.

Required:
(a) State, with reasons, the initial audit procedures you would perform on the schedules provided by the company’s accountant. (3 marks)
(b) Outline the substantive audit procedures you would apply in verifying additions to plant and machinery. Your answer should identify procedures applicable to each of the financial statement assertions. (8 marks)
(c) Describe the audit procedures applicable to verifying the revaluation of property. (5 marks)
(d) With respect to the correction to accumulated depreciation, and assuming the amount to be material, discuss the accountant’s proposed treatment. If you disagree with the accountant’s proposal, state, with reasons, the correct accounting treatment. (4 marks)

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – L2 – Q53 – Audit Procedures for Non-Current Assets"

Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form