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The procedures to ensure that the Going concern is still appropriate to your clients include:
•• Assess the adequacy of the means by which the directors have satisfied themselves
that the adoption of the going concern basis is appropriate.
•• Examine all appropriate evidence.
•• Assess the adequacy of the length of time into the future that the directors have
looked.
•• Assess the systems or other means by which the directors have identified warnings of
future risks and uncertainties.
•• Examine budgets and other future plans and assess the reliability of such budgets by
reference to past performance.
•• Examine management accounts and other reports of recent activities
•• Consider the sensitivity of budgets and cash flow forecasts variable factors both within
the control of the directors (e.g. capital expenditure) and outside their control (e.g.
interest or debt collection)
•• Review any obligations, undertakings or guarantees arranged with other entities for the
giving or receiving of support. Other entities may mean lenders, suppliers, customers
or other companies in the same group. A Kenyan company may be viable in itself but
may have given guarantees to other members of the group and when, say the holding
company in Uganda fails, the company goes down with it.
•• Survey the existence, adequacy and terms of borrowing facilities and supplier credit.
•• Appraise the key assumptions underlying the budgets, forecasts and other information
used by the directors.
•• Assess the director’s plans for resolving any matters giving rise to concern (if any)
about the appropriateness of the going concern basis. Such plans should be realistic,
capable of resolving the doubts and the directors should have firm intentions to put
them into effect.
Finally the auditor should review all the information they have and all the audit evidence available and consider whether they can accept the going concern basis. They should always have all their evidence documented and their reasoning explained fully in the working papers.
Wilfykil answered the question on April 13, 2019 at 06:59
- Walsh Co sells motor vehicle fuel, accessories and spares to retail customers. The company
owns 25 shops.(Solved)
Walsh Co sells motor vehicle fuel, accessories and spares to retail customers. The company
owns 25 shops. The company has recently implemented a new computerized wages system.
Employees work a standard eight hour day. Hours are recorded using a magnetic card system;
when each employee arrives for work, they hold their card close to the card reader; the reader
recognizes the magnetic information on the card identifying the employee as being ‘at work’.
When the employee leaves work at the end of the day the process is reversed showing that the
employee has left work.
Hours worked are calculated each week by the computer system using the magnetic card
information. Overtime is calculated as any excess over the standard hours worked. Any overtime
over 10% of standard hours is sent on a computer generated report by e-mail to the financial
accountant. If necessary, the accountant overrides overtime payments if the hours worked are
incorrect.
Statutory deductions and net pay are also computer calculated with payments being made directly
into the employee’s bank account. The only other manual check is the financial accountant
authorizing the net pay from Walsh’s bank account, having reviewed the list of wages to be paid.
Required:
a. Using examples from Walsh Co, explain the benefits of using Computer-Assisted Audit
Techniques to help the auditor to obtain sufficient appropriate audit evidence to be able
to draw reasonable conclusions on which to base the audit opinion.
b. List SIX examples of audit tests on Walsh Co’s wages system using audit software.
c. Explain how using test data should help in the audit of Walsh Co’s wages system,
noting any problems with this audit technique.
Date posted: April 13, 2019. Answers (1)
- List and briefly explain some of the difficulties of using audit software.(Solved)
List and briefly explain some of the difficulties of using audit software.
Date posted: April 13, 2019. Answers (1)
- Nagaya a limited liability company is a reseller of sports equipment, specializing in racquet
sports such as tennis, squash and badminton. (Solved)
Nagaya a limited liability company is a reseller of sports equipment, specializing in racquet
sports such as tennis, squash and badminton. The company purchases equipment from a
variety of different suppliers and then resells this using the Internet as the only selling media.
The company has over 150 different types of racquets available in inventory, each identified
via a unique product code.
Customers place their orders directly on the Internet site. Most orders are for one or two
racquets only. The ordering/sales software automatically verifies the order details, customer
address and credit card information prior to orders being verified and goods being dispatched.
The integrity of the ordering system is checked regularly by Archer Web, an independent
Internet service company.
You are the audit manager working for the external auditors of Nagaya, and you have just
started planning the audit of the sales system of the company. You have decided to use test
data to check the input of details into the sales system. This will involve entering dummy
orders into the Nagaya’s system from an online terminal.
Required:
List the test data you will use in your audit of the financial statements of Nagaya to confirm the
completeness and accuracy of input into the sales system, clearly explaining the reason for each
item of data.
Date posted: April 13, 2019. Answers (1)
- Computer-Assisted Audit Techniques (CAATs) are used to assist an auditor in the collection
of audit evidence from computerized systems.(Solved)
Computer-Assisted Audit Techniques (CAATs) are used to assist an auditor in the collection
of audit evidence from computerized systems.
Required:
List and briefly explain four advantages of CAATs.
Date posted: April 13, 2019. Answers (1)
- Computer security is of vital importance not only to the accountant in industry but also to the
accountant in practice who may be advising his client...(Solved)
Computer security is of vital importance not only to the accountant in industry but also to the
accountant in practice who may be advising his client as to suitable security controls or who
may be auditing a computer system. Security is the means by which losses are controlled and
therefore involves the identification of risks and the institution of measures to either prevent such
risks entirely or to reduce their impact.
a. State four areas of risk which may arise in relation to a computer system and in each
case explain one factor which could lead to the system being exposed to such risk.
b. Describe the different forms of control which should be instituted to safeguard against
computer security risks.
Date posted: April 13, 2019. Answers (1)
- A medium size firm which has been your client for several years has changed from manual
accounting system to a computerized one. State and explain the...(Solved)
A medium size firm which has been your client for several years has changed from manual
accounting system to a computerized one. State and explain the factors which you will take into
account when planning the first audit under the new system.
Date posted: April 13, 2019. Answers (1)
- There are a number of different methods of obtaining audit evidence. Methods include:(Solved)
There are a number of different methods of obtaining audit evidence. Methods include:
•• Analytical procedures.
•• Audit sampling
•• Tests of controls.
•• Detailed testing of transactions and balances.
•• Computer assisted audit techniques (CAATs)
These methods overlap and may be used for different purposes during an audit of financial statements.
Required:
Describe the relationship between the five methods of evidence gathering described above.
Date posted: April 12, 2019. Answers (1)
- (Solved)
Curdco is a company that runs a chain of fast food restaurants. The company has a centralized
operating style and managers of individual restaurants have very limited decision-making powers
on day-to-day operational matters. The company’s centralized administration is responsible for
the buying of food, the payment of staff, the maintenance and cleaning of restaurants by staff
employed by a national agency, and all other matters relating to the running of the business. The
company has good internal controls over purchasing. Inventory counts are conducted at each
restaurant at the year-end. Your firm has recently been appointed as auditor to Curdco.
Required:
a. List the account headings you would expect to find in Curdco’s schedule of accounts payable and accrued expenditure.
b. Describe and give reasons for the audit tests you would carry out to obtain audit evidence for Curdco’s accounts payable and accrued expenditure.
Date posted: April 12, 2019. Answers (1)
- Explain the difficulties faced by auditors, and the decisions that auditors have to make, in conducting direct confirmations of accounts payable.(Solved)
Explain the difficulties faced by auditors, and the decisions that auditors have to make, in conducting direct confirmations of accounts payable.
Date posted: April 12, 2019. Answers (1)
- The external audit process for the audit of large entities generally involves two or more recognizable
stages. One stage involves understanding the business and risk assessment,...(Solved)
The external audit process for the audit of large entities generally involves two or more recognizable
stages. One stage involves understanding the business and risk assessment, determining the
response to assessed risk, testing of controls and a limited amount of substantive procedures.
This stage is sometimes known as the interim audit. Another stage involves further tests of
controls and substantive procedures and audit finalization procedures. This stage is sometimes
known as the final audit.
Describe and explain the main audit procedures and processes that take place during the interim
and final audit of a large entity.
Date posted: April 12, 2019. Answers (1)
- Explain whether the following types of audit evidence meets the standards of relevancy,
reliability and sufficiency as required by the auditor’s operational standards regarding:
• Written confirmation...(Solved)
Explain whether the following types of audit evidence meets the standards of relevancy,
reliability and sufficiency as required by the auditor’s operational standards regarding:
• Written confirmation of a trade debtor circularized at year end
• Work-in-progress stocks identified during the annual physical stock count
• Solicitor’s letter confirming pending legal action
Date posted: April 12, 2019. Answers (1)
- Explain the meaning of the following terms;
• Relevant audit evidence
• Reliable audit evidence(Solved)
Explain the meaning of the following terms;
• Relevant audit evidence
• Reliable audit evidence
Date posted: April 12, 2019. Answers (1)
- Compare the responsibilities of the directors and auditors regarding the published financial statements(Solved)
Compare the responsibilities of the directors and auditors regarding the published financial statements
Date posted: April 12, 2019. Answers (1)
- The responsibilities of internal and external auditors in relation to the risk of fraud and error differ.(Solved)
The responsibilities of internal and external auditors in relation to the risk of fraud and error differ.
Explain the responsibilities of external auditors in respect of the risk of fraud and error in an audit
of financial statements
Date posted: April 12, 2019. Answers (1)
- Stone Holidays is an independent travel agency. It does not operate holidays itself. It takes commission on holidays sold to customers through its chain of...(Solved)
Stone Holidays is an independent travel agency. It does not operate holidays itself. It takes commission on holidays sold to customers through its chain of high street shops. Staff are partly paid on a commission basis. Well-established tour operators run the holidays that Stone Holidays sells. The networked reservations system through which holidays are booked and the computerised accounting system are both well-established systems used by many independent travel agencies. Payments by customers, including deposits, are accepted in cash and by debit and credit card. Stone Holidays is legally required to pay an amount of money (based on its total sales for the year) into a central fund maintained to compensate customers if the agency should cease operations.
Describe the nature of the risks to which Stone Holidays is subject arising from fraud and error.
Date posted: April 12, 2019. Answers (1)
- Fraud and error present risks to an entity. Both internal and external auditors are required to deal
with risks to the entity.(Solved)
Fraud and error present risks to an entity. Both internal and external auditors are required to deal
with risks to the entity.
Required:
Explain how the internal audit function helps an entity deal with the risk of fraud and error.
Date posted: April 12, 2019. Answers (1)
- You are the audit manager for Parker, a limited liability company which sells books, CDs, DVDs
and similar items via two divisions: mail order and on-line...(Solved)
You are the audit manager for Parker, a limited liability company which sells books, CDs, DVDs
and similar items via two divisions: mail order and on-line ordering on the Internet. Parker is a
new audit client. You are commencing the planning of the audit for the year-ended 31 May 2005.
An initial meeting with the directors has provided the information below.
The company’s turnover is in excess of Kshs85 million with net profits of Kshs4 million. All profits
are currently earned in the mail order division, although the Internet division is expected to return
a small net profit next year. Turnover is growing at the rate of 20% p.a. Net profit has remained
almost the same for the last four years. In the next year, the directors plan to expand the range of
goods sold through the Internet division to include toys, garden furniture and fashion clothes. The
directors believe that when one product has been sold on the Internet, then any other product
can be as well.
The accounting system to record sales by the mail order division is relatively old. It relies on
extensive manual input to transfer orders received in the post onto Parker’s computer systems.
Recently errors have been known to occur, in the input of orders, and in the invoicing of goods
following dispatch. The directors maintain that the accounting system produces materially
correct figures and they cannot waste time in identifying relatively minor errors. The company
accountant, who is not qualified and was appointed because he is a personal friend of the
directors, agrees with this view, The directors estimate that their expansion plans will require a
bank loan of approximately Kshs30 million, partly to finance the enhanced web site but also to
provide working capital to increase inventory levels. A meeting with the bank has been scheduled
for three months after the year end. The directors expect an unmodified auditor’s report to be
signed prior to this time.
Required:
Identify and describe the matters that give rise to audit risks associated with Parker .
Date posted: April 12, 2019. Answers (1)
- Ajio is a charity whose constitution requires that it raises funds for educational projects. These
projects seek to educate children and support teachers in certain countries(Solved)
Ajio is a charity whose constitution requires that it raises funds for educational projects. These
projects seek to educate children and support teachers in certain countries. Charities in the
country from which Ajio operates have recently become subject to new audit and accounting
regulations. Charity income consists of cash collections at fund raising events, telephone
appeals, and bequests (money left to the charity by deceased persons). The charity is small
and the trustees do not consider that the charity can afford to employ a qualified accountant.
The charity employs a part-time bookkeeper and relies on volunteers for fund raising. Your firm
has been appointed as accountants and auditors to this charity because of the new regulations.
Accounts have been prepared (but not audited) in the past by a volunteer who is a recently
retired Chartered Certified Accountant.
Required:
Describe the risks associated with the audit of Ajio under the headings inherent risk, control risk and detection risk and explain the implications of these risks for overall audit risk
Date posted: April 12, 2019. Answers (1)
- List and explain the audit tests to be performed on income and expenditure from fund raising events.(Solved)
List and explain the audit tests to be performed on income and expenditure from fund raising events.
Date posted: April 12, 2019. Answers (1)
- ISA 400 (Risk Assessments and Internal Control) deals with internal control objectives and
internal controls. ISA 500 (Audit Evidence) deals with audit objectives and audit procedures....(Solved)
ISA 400 (Risk Assessments and Internal Control) deals with internal control objectives and
internal controls. ISA 500 (Audit Evidence) deals with audit objectives and audit procedures. A
proper understanding of internal controls is essential to auditors in order that they understand the
business and are able to effectively plan and execute tests of controls and an appropriate level
of substantive procedures.
You are the auditor of a small manufacturing company, Dinko, that pays its staff in cash and by
bank transfer and maintains its payroll on a small stand-alone computer.
Required:
(a) For the payroll department at Dinko, describe the:
i. Internal control objectives that should be in place.
ii. Internal control environment and internal control procedures that should be in place to achieve the internal control objectives.
(b) For the payroll charges and payroll balances (including cash) in the financial statements of Dinko:
i. Describe the external auditor audit objectives.
ii. List the tests of control and substantive procedures that will be applied in order to achieve the audit objectives identified in (b) (i) above.
Date posted: April 12, 2019. Answers (1)