Get premium membership and access questions with answers, video lessons as well as revision papers.
a) The case for carrying out risk analysis during an audit
i) Potential errors may he reduced by reducing the need to combine large quantities of
data in one's head.
ii) A direct linkage can be provided between the administrative structure and budget of
the internal audit department and the characteristics of individual audit units, this
linkage emphasizes the integrated nature of administrative and operational activities.
iii) New data can be more easily incorporated into the analysis as it becomes available.
iv) Consistency may be enhanced since it may be easier to set operational guidelines for
quantitative risk assessment methods than for more global qualitative risk judgments.
v) Quantitative methods may be more easily defended; e.g., to audit committees, external
parties, etc.
vi) Quantitative judgments of risk can be incorporated into other methods to help ensure
the appropriate intensity of auditing commensurate with the risk profile of the audit
unit. This can help reduce the possibility of over auditing or under auditing.
vii) Review and consultation are facilitated.
viii) Decisions may be easier to explain and justify, especially in the future when the
auditor's memory of the circumstances fades.
b) Procedures for audit of inventories
1) Cutoff analysis.
The auditors will examine your procedures for halting any further receiving into the warehouse
or shipments from it at the time of the physical inventory count, so that extraneous inventory
items are excluded. They typically test the last few receiving and shipping transactions prior to
the physical count, as well as transactions immediately following it, to see if you are properly
accounting for them.
ii) Observe the physical inventory count.
The auditors want to be comfortable with the procedures you use to count the inventory. This
means that they will discuss the counting procedure with you, observe counts as they are being
done, test count some of the inventory themselves and trace their counts to the amounts recorded
by the company's counters, and verify that all inventory count tags were accounted for. If you
have multiple inventory storage locations, they may test the inventory in those locations where
there are significant amounts of inventory. They may also ask for confirmations of inventory
from the custodian of any public warehouse where the company is storing inventory.
iii) Reconcile the inventory count to the general ledger.
They will trace the valuation compiled from the physical inventory count to the company's
general ledger, to verify that the counted balance was carried forward into the company's
accounting records.
iv) Test high-value items.
If there are items in the inventory that are of unusually high value, the auditors will likely spend
extra time counting them in inventory, ensuring that they are valued correctly, and tracing them
into theā¢ valuation report that carries forward into the inventory balance in the general ledger.
v) Test error-prone items.
If the auditors have noticed an error trend in prior years for specific inventory items, they will be
more likely to test these items again.
vi) Test inventory in transit.
There is a risk that you have inventory in transit from one storage location to another at the time
of the physical count. Auditors test for this by reviewing your transfer documentation.
vii) Test item costs.
The auditors need to know where purchased costs in your accounting records come from, so they
will compare the amounts in recent supplier invoices to the costs listed in your inventory
valuation.
viii) Review freight costs.
You can either include freight costs in inventory or charge it to expense in the period incurred,
but you need to be consistent in your treatment - so the auditors will trace a selection of freight
invoices through your accounting system to see how they are handled.
ix) Test for lower of cost or market.
The auditors must follow the lower of cost or market rule, and will do so by comparing a
selection of market prices to their recorded costs.
x) Finished goods cost analysis.
If a significant proportion of the inventory valuation is comprised of finished goods, then the
auditors will want to review the bill of materials for a selection of finished 1.00ds items. and test
them to see if they show an accurate compilation of the components in the finished goods items,
as well as correct costs.
xi) Direct labor analysis.
If direct labor is included in the cost of inventory, then the auditors will want to trace the labor
charged during production on time cards or labor routings to the cost of the inventory. They will
also investigate whether the labor costs listed in the valuation are supported by payroll records.
Kavungya answered the question on May 14, 2019 at 13:52
- Describe the audit work that should be carried out by an auditor on suppliers invoices in the
course of auditing purchases.(Solved)
Describe the audit work that should be carried out by an auditor on suppliers invoices in the
course of auditing purchases.
Date posted: May 14, 2019. Answers (1)
- a) List four audit .procedures you would perform on credit notes issued to customers upon
return of goods
b) Explain why it is important for an auditor...(Solved)
a) List four audit .procedures you would perform on credit notes issued to customers upon
return of goods
b) Explain why it is important for an auditor to send a bank letter to his client's bank.
c) Summarize any six procedures that are undertaken by an auditor while obtaining
confirmation from a client's bank.
Date posted: May 14, 2019. Answers (1)
- Briefly explain the following terms.
i) Analytical procedures
ii) Audit opinion.
iii) Audit working papers(Solved)
Briefly explain the following terms.
i) Analytical procedures
ii) Audit opinion.
iii) Audit working papers
Date posted: May 14, 2019. Answers (1)
- Choose the most reliable source of evidence from the two options given in each of the following
scenarios:
i) A bank reconciliation prepared by the Senior Chief...(Solved)
Choose the most reliable source of evidence from the two options given in each of the following
scenarios:
i) A bank reconciliation prepared by the Senior Chief Accountant of XYZ Ltd. or, A
bank confirmation received from a small branch of Zed Bank Ltd; bankers of XYZ
Ltd.
ii) Negative circularization received directly by the client from a major debtor of XYZ
Ltd. or; Positive circularization received directly by the auditor from a debtor with
respect to a debt that had earlier been written off.
iii) A logbook that shows vehicle registration number NEB 201 is registered under the
ownership of the CEO of XYZ Ltd. or; An oral representation by the CEO of XYZ
Ltd. assuring you that the car is owned by XYZ Ltd.
iv) An LPO drafted by the Storekeeper of XYZ Ltd who has been procuring goods for
XYZ Ltd. for the past ten years or;
A Goods Received Note generated by the storekeeper and signed by the supplier upon delivery
of goods.
Date posted: May 14, 2019. Answers (1)
- a. List eight factors that an auditor should take into consideration when determining the size
of an audit sample.
b) Citing two examples in each case, describe...(Solved)
a. List eight factors that an auditor should take into consideration when determining the size
of an audit sample.
b) Citing two examples in each case, describe the quality of the following types of audit
evidence:
(i) Evidence originated by the auditor.
(ii) Evidence created by third parties.
(iii) Evidence created by the management of the client.
Date posted: May 14, 2019. Answers (1)
- Briefly explain how an auditor could gather sufficient audit evidence using the following
techniques:
(i) Vouching.
(ii) Verification(Solved)
Briefly explain how an auditor could gather sufficient audit evidence using the following
techniques:
(i) Vouching.
(ii) Verification
Date posted: May 14, 2019. Answers (1)
- Briefly explain the importance of working papers in enhancing the quality control of an audit
assignment.(Solved)
Briefly explain the importance of working papers in enhancing the quality control of an audit
assignment.
Date posted: May 14, 2019. Answers (1)
- a) Explain the importance of the going concern assumption in the preparation of the annual
financial statements of entities.
b) List four statutory, books that would be...(Solved)
a) Explain the importance of the going concern assumption in the preparation of the annual
financial statements of entities.
b) List four statutory, books that would be of interest to the auditor.
c) Describe the substantive procedures the auditor would apply to the following records:
i. The accounting records
ii. The company's minute book
Date posted: May 14, 2019. Answers (1)
- Describe the general considerations which the auditors must bear in mind when evaluating audit
evidence.(Solved)
Describe the general considerations which the auditors must bear in mind when evaluating audit
evidence.
Date posted: May 14, 2019. Answers (1)
- a) Briefly describe the audit tests you would carry out to verify trade accounts receivable
at the year end.
b) Describe the audit work you would carry...(Solved)
a) Briefly describe the audit tests you would carry out to verify trade accounts receivable
at the year end.
b) Describe the audit work you would carry out on the following replies to a receivables
circularisation:
(i) Balance agreed by the customer.
(ii) Balance not agreed by customer.
(iii) Customer does not reply to the confirmation letter.
Date posted: May 14, 2019. Answers (1)
- Describe how you would vouch a loan to an employee of Sh. 100,000 shown in the account of a
client.(Solved)
Describe how you would vouch a loan to an employee of Sh. 100,000 shown in the account of a
client.
Date posted: May 14, 2019. Answers (1)
- Justify the use of previous year's financial statements while carrying out an audit assignment.(Solved)
Justify the use of previous year's financial statements while carrying out an audit assignment.
Date posted: May 14, 2019. Answers (1)
- Explain five benefits of an asset register to the auditor.(Solved)
Explain five benefits of an asset register to the auditor.
Date posted: May 14, 2019. Answers (1)
- Discuss five assertions that an auditor should consider during the conduct of substantive
procedures in an audit(Solved)
Discuss five assertions that an auditor should consider during the conduct of substantive
procedures in an audit
Date posted: May 14, 2019. Answers (1)
- a) Outline six stages of an accounts receivable circularization
b) ISA 500 'Audit Evidence-Revised' provides the methods which the auditor could use
while collecting audit evidence. Using...(Solved)
a) Outline six stages of an accounts receivable circularization
b) ISA 500 'Audit Evidence-Revised' provides the methods which the auditor could use
while collecting audit evidence. Using relevant examples, examine seven methods of
collecting audit evidence
Date posted: May 14, 2019. Answers (1)
- a) List four reasons for preparing audit working papers
b) Identify four types of information you would expect to -find in the following:-
i. Permanent audit file
ii....(Solved)
a) List four reasons for preparing audit working papers
b) Identify four types of information you would expect to -find in the following:-
i. Permanent audit file
ii. Current audit file
Date posted: May 14, 2019. Answers (1)
- The appropriateness of audit evidence is concerned with relevance and reliability
Required;-
Explain any three considerations that an auditor uses to assess the reliability of any piece...(Solved)
The appropriateness of audit evidence is concerned with relevance and reliability
Required;-
Explain any three considerations that an auditor uses to assess the reliability of any piece of audit
evidence
Date posted: May 14, 2019. Answers (1)
- a) Explain six limitations of gathering audit evidence.
b) Summarise three considerations that must be made for the external auditor to rely on the
work of the...(Solved)
a) Explain six limitations of gathering audit evidence.
b) Summarise three considerations that must be made for the external auditor to rely on the
work of the internal auditor.
c) In view of the financial reporting framework, explain five considerations that the auditor
should make when forming an opinion.
Date posted: May 14, 2019. Answers (1)
- a) Standardisation of working papers refers to a predetermined Format of presenting and
documenting audit findings.
With reference to the above statement, discuss three advantages and three...(Solved)
a) Standardisation of working papers refers to a predetermined Format of presenting and
documenting audit findings.
With reference to the above statement, discuss three advantages and three disadvantages
of standardized working papers.
b) Explain Four factors that could influence the acceptance of evidence obtained from a
third party.
Date posted: May 14, 2019. Answers (1)
- An auditor should perform procedures to obtain information that is used to identify the risks of
material misstatement due to fraud".
Highlight the audit procedures you would...(Solved)
An auditor should perform procedures to obtain information that is used to identify the risks of
material misstatement due to fraud".
Highlight the audit procedures you would carry out to detect the following types of fraud:
i. The motor vehicle of an employee is covered through the insurance scheme of the
company's motor vehicles.
ii. The motor vehicle of an employee is repaired using the company's funds and the amount
appears as an expense in the accounting records.
Date posted: May 14, 2019. Answers (1)