Question 1

Explain the differences between
-an accrual
-a provision
-a contingent liability
Explain the audit objectives, including the assertions to be validated, in the audit of provisions and how an auditor might approach the process of evidence gathering.

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-an accrual
-a provision
-a contingent...

Question 2

Set out the audit objectives for the audit of a purchases and expenses system including the relevant assertions

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Question 3

Explain what is meant by the following terms:
(i) Audit risk
(ii) Inherent risk
(iii) Control risk
(iv) Detection risk

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Question 4

You are the audit manager in charge of the audit of Gorilla plc. You are about to brief junior members of the audit team prior to the audit of the Statement of Financial Position. Write some notes in preparation for your meeting with the audit juniors to explain the assertions in relation to current assets and what each of the assertions means.

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Question 5

Explain the basic principles of risk based auditing. Set out five examples each of
-Strategic risks
-Operational risks

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Question 6

You are the audit senior of Wellington Ltd for the year end 31 December 201X, in charge of trade receivables. You are about to start your yearend work and have been given the following extracts by your audit manager for you to consider as part of your planning and analytical review stage. Receivables ledger (ageing extract)

	Current 0-30 days £’000	30-60 days £’000	60-90 days £’000	>90 days	Total £’000
2X11	2,671	1,068	1,068	535	5,342
2X10	1,984	1,190	595	198	3,967

Income statement (extract)

	2X11 £’000	2X10 £’000
Turnover	35,451	36,200
Cost of sales	(28,715)	(27,874)
Gross profit	6,736	8,326

(a) Calculate ratios or percentages that will help your analysis of the sales and trade receivables position for the two years. (b) Explain some of the concerns you have following your initial analysis (in part a) and the resulting potential implications for your audit. (c) You sent out a receivables circularization on the year end balances. Describe the process you would have gone through to do this. (d) Some of the debtors have not responded to your circularization. List the procedures you would now follow for these balances

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Question 7

Hung Lo Ltd is a wholesaler of furniture (such as chairs, tables and cupboards). Hung Lo buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from large retail chain stores to smaller owner-controlled businesses. All financial accounts transaction information is stored on Hung Lo's computer systems. Previous audits have tended to adopt an 'audit around the computer' approach.
You are the audit manager in charge of the audit. For the first time at this client, you have decided to use audit software to assist with the audit of the financial systems.
Computer staff at Hung Lo are happy to help the auditor, although they cannot confirm that all the systems documentation is complete. They have warned you that Hung Lo's accounting software is run using very old operating systems which may not be compatible with more modern programs.
The change in audit approach has been taken mainly to gain a full understanding of Hung Lo's computer systems prior to new internet modules being added next year. To limit the possibility of damage to Hung Lo's computer files, copy files will be provided by Hung Lo's computer staff for the auditor to use with their own audit software.
Following a discussion with the management at Hung Lo Ltd you understand that the internal audit department are prepared to assist with the statutory audit. Specifically, the chief internal auditor is prepared to provide you with some documentation on the computerised wages systems at Hung Lo Ltd. The documentation provides details of the software and shows diagrammatically how transactions are processed through the inventory system. This documentation can be used to significantly decrease the time needed to understand the computer systems and enable audit software to be used on this year's audit.
Based on the information above explain the additional problems the auditors face when considering the use of audit software at Hung Lo Ltd. For each problem, explain how it might be resolved.

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Quiz 2: Unit 11-20

Explain the differences between -an accrual -a provision -a contingent liability Explain the audit objectives, including the assertions to be validated, in the audit of provisions and how an auditor might approach the process of evidence gathering.

Set out the audit objectives for the audit of a purchases and expenses system including the relevant assertions

Explain what is meant by the following terms: (i) Audit risk (ii) Inherent risk (iii) Control risk (iv) Detection risk

Explain the basic principles of risk based auditing. Set out five examples each of -Strategic risks -Operational risks