These questions are for practice only. They are not at all an indication of the questions on the actual exams. All topics need to be revised from topic 4 onwards for the exam. These questions and possible answers will be discussed during revision lecture. Solution will not be provided on the learning hub. Section A (Short answer) 1. List and briefly explain four factors that contribute to the need for financial report audits. Increasing reliability, increase confidence of investor, ,Complexity of information, 2,remoteness of information, have enough information; 3,conflicts of interest, if management are providing some information to shareholders, but shareholders don’t believe this information, 4,consequence providing wrong information to users.
2. How is materiality (and immateriality) related to the proper presentation of financial statements? Start with what is materiality Proper presentation of FS is complying with acct standards, true information. n terms of true and fair the amount is correct, no mistake. Any mistake, which like is more than this level, we will considered as material mistake, and auditor can collect and find evidence all the amount and transactions are true and fair. 3. Provide a definition of subsequent events. List the types of events that require consideration by management and evaluation by the auditor and give an example of each. Definition. Type 1 and type 2. Difference. 4. List the types of audit tests and how they relate to the audit risk model.
TOC, substantive test, analytical procedure, test of details AR=IR, CR, and DR TOC: check the effectiveness of internal control , CR high –predominately substantive procedure, more reliance on detailed substantive test. CR low—lower assessed level of control risk approach, more TOC, reduced reliance on substantive test. 5. ASA 700 requires the auditor to form an opinion on the financial statement of the entity that has been audited. To be able to do so, the auditor must accumulate sufficient and competent evidence. List the types of audit evidence and explain which are most and least reliable.
External confirmations, documentary evidence, verbal evidence, computational evidence, physical evidence, electronic evidence. Least to most persuasive: evidence generated internally by client, generated externally, held by client, externally generated evidence sent direct to auditor. Section B ( Essay Question) 6. Explain the purpose of communicating with those charged with governance at the end of the audit. Refer to real life cases where this clearly did not occur by the auditor. communicating with those charged with governance = Communication between auditor and management.
Start with management letter, management letter is communication with those charged with governance. Material information, any chance of fraud, any chance of wrong acct information, you need to inform to management Section C (Case study question ) 7. Didotech Co Ltd is a large electronics manufacturing company with a year end balance date of 30 June 2011. Assume that the following material events or transactions have come to your attention prior to completion of your audit work on 31 August 2011. Subsequent event i) A fire occurred in the warehouse on 12 July 2011 causing substantial damage to inventory valued at $2 million.
Responsibility in this case as an auditor: set materiality, disclosure. Type 2 subsequent event ii) On 18 July 2011 the company made an out-of-court settlement for $2 million in relation to a litigation case dating back to 2008 for damages and loss of profits arising from the malfunction of some electronics equipment supplied. There was a contingent liability of 1. 2 million dollars in the 30 June 2011 accounts. Contingent liability type1 subsequent event, the settlement has been done REQUIRED: a) Identify three audit procedures that could have brought any of the above items to the attention of the auditor. nspects minutes book in the board meeting, Legal representation letter
b) As the Senior on the audit, you have been made responsible for determining whether any of the above events require changes to be made to the accounts, or require notes to the accounts. Explain the changes, if any, that would need to be made because of the above circumstances. c) On 1 September 2011, the auditor signs the audit report. Explain the auditor’s responsibility for subsequent events occurring after signing the audit report but before issuance of the financial report.