There is a risk that management may be biased in the judgements when calculating estimated figures. The auditor must therefore approach these values with professional scepticism regarding the judgements.
The audit approach required is set out in ISA 540 Auditing Accounting Estimates, Including
Fair Value Accounting Estimates, and Related Disclosures. Essentially, if risk assessment procedures have identified a risk of material misstatement due to accounting estimates, the auditor can respond by undertaking different methods.
To test the process that management used to calculate the provision for doubtful accounts receivable, the auditor may use all of the following methods except:
Answer : B
Assurance providers obtain evidence using procedures set out in ISA 500.
Identify which type of audit procedures is / are correctly paired with each tests carried out by an auditor.
TestsAudit procedures -
(i)The assurance provider writes to a sample of customers
asking them to inform him of the balance they owe theInspection company at the year end
(ii)The assurance provider looks at a share certificate to
confirm that the company has an investment in Company AObservation
(iii)The assurance provider attends the inventory count and
ensures that it is being carried out in accordance withConfirmation the issued instructions
Answer : D
A personnel department is responsible for processing placement agency fees for new hires. A recruiter established some bogus placement agencies and, when interviewing walk-in applicants, the recruiter would list one of the bogus agencies as referring the candidate.
A possible means of detection or deterrence is to
Answer : B
After partially completing an internal control review of the accounts payable department, the auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use
Answer : C
Frederich Gastona has been invited by ECA Co to perform the audit of financial statements of 2012-13. When deciding whether to accept an auditing engagement, Frederich must judge his independence and objectivity. If Frederichs audit firm lacks independence or objectivity, Frederich cant accept the engagement.
What does Independence mean in the context of the above case?
Answer : C
An employee of an insurance company processed a fraudulent policy loan application for an amount less than the established level requiring supervisory review. The employee then obtained the cheque and cashed it by forging the endorsement. To prevent the loans appearance on a subsequent policyholder statement, the loan amount was transferred to a suspense account. Which of the following should expose this situation at the earliest date?
Answer : A
Your firm has recently been appointed as auditor to Crate Ltd for the year ending 31
October 2012. This is the first year of audit for Crate Ltd as it fell below the statutory audit exemption limits for the year ended 31 October 2011, which was the company's first period of trading.
Which of the following is NOT a matter to be considered in respect of the opening balances of Crate Ltd?
Answer : C
Deteriora Ltd has recently started up the audit of a new client, Thatch plc. The auditor has identified that Thatch plc has few employees in its accounting department.
Which of the following is the MOST appropriate approach that should be used by Deteriora
Ltd under this circumstance?
Answer : B
Auditing standards require that the auditor and the client agree on the terms of the engagement. The agreed terms must be in writing and the usual form would be a letter of engagement. Any other form of appropriate contract, however, may be used.
Which of the following is NOT a benefit of an engagement letter in respect of assurance services?
Answer : D
Accounting principle assumes that, a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
Answer : D
After completing an internal control review of the accounts payable department partially, the auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use
Answer : C
Norman & Co is the external auditor of Diamond plc, a listed company. The directors of
Diamond plc have requested that Norman & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate
Governance Code.
Which of the following understanding is LEAST necessary for Norman & Co to understand
Diamond plc and its environment?
Answer : C
Rehan & Co has been appointed as an external auditor of Limba Plc for the financial year
2011-12. Rehan & Co has identified some problems in the financial statements and now at the final stage of writing the report on the audit.
In which of the following case, Rehan & Co may issue an adverse opinion?
Answer : C
Internal auditors must exercise due care if they are to meet their responsibilities for fraud detection. Thus, the existence of certain conditions should raise auditors professional scepticism concerning possible fraud. Which of the following is most likely to be considered as an indication of possible fraud?
Answer : B
The universal audit approach requires all companies to prepare accounts for their shareholders, to have them audited and to le them at a public registry where they can be accessed by parties who might do business with the company.
Which of the following services provides the lowest level of assurance about a companys financial statements?
Answer : A
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