Question 1:

Which of the following procedures does NOT test the financial statement assertion of completeness?

> Cast the payables listing and agree the total to the payables control account and draft financial
statements.

> Inspect post year-end payments and for payments relating to items delivered before the year-end,
trace through to the year end payables listing.

> Trace a sample of invoices listed in the payables listing to the actual invoice and goods received note.

> Review board minutes to identify if any further claims have been brought against Metcalf.

Your answer:

Inspect post year-end payments and for payments relating to items delivered before the year-end, trace
through to the year end payables listing.

Status:
Incorrect

ID: KA17AC_18_MC_100
Question 2:

Which of the following analytical procedures would NOT be performed by the auditor of Metcalf?

> Calculate the payables days ratio, compare with the prior year and investigate any significant
differences.

> Compare the trade payables balance of the current year with the prior year and investigate any
significant differences.

> Compare the accruals balance of the current year with the prior year and investigate any significant
differences.

> Compare the provision for legal action balance of the current year with the prior year and investigate
any significant differences.

Your answer:

Compare the provision for legal action balance of the current year with the prior year and investigate
any significant differences.

Status:
Correct

ID: KA17AC_18_MC_101
Question 3:

In relation to the provision for legal action, which of the following statements is true?

> A contingent liability should be disclosed as the directors dispute the claim.

> A provision should be recognised as the claim is likely to be settled out of court.

> A provision should only be recognised when the claim is settled.

> The auditor's report will need to be modified as a result of the legal claim.

Your answer:

A provision should be recognised as the claim is likely to be settled out of court.

Status:
Correct

ID: KA17AC_18_MC_102
Question 4:

Which of the following procedures would NOT be performed in respect of the legal claim?

> Obtain an external confirmation from the customer that they have made a claim and will be willing to
accept the out of court settlement.

> Inspect correspondence with Metcalf's lawyers regarding the claim.

> Enquire of the directors whether they are likely to settle out of court.

> Inspect post year-end bank statements to identify if an out of court settlement has been made.

Your answer:

Obtain an external confirmation from the customer that they have made a claim and will be willing to
accept the out of court settlement.

Status:
Correct

ID: KA17AC_18_MC_103
Question 5:

Which TWO of the following statements are true?

>Supplier statement reconciliations confirm the financial statement assertions of rights & obligations
and existence.

>Provisions are inherently risky as they are often subjective and a matter of management judgement.

>Existence is the key risk when testing payables.

>Accruals are not usually tested in detail as they are usually immaterial.

Your answer:

Existence is the key risk when testing payables.

Accruals are not usually tested in detail as they are usually immaterial.

Status:
Incorrect

ID: KA17AC_18_MC_104
Question 6:

Which TWO of the following statements are true?

>The debt of $50,000 is not material as it represents 0.7% of profit before tax.

>The liquidation of a customer with a debt owing at the year-end is a non-adjusting event.

>The cost of complying with the new regulations is not material as it represents 14% of profit before
tax.

>The cost of complying with the new regulations is a non-adjusting event.

Your answer:

The debt of $50,000 is not material as it represents 0.7% of profit before tax.

The cost of complying with the new regulations is a non-adjusting event.

Status:
Correct

ID: KA17AC_18_MC_105
Question 7:

Which of the following is the most appropriate action OCC should take in respect of the liquidation of
the customer?

> The irrecoverable debt should be written off.

> The irrecoverable debt can be ignored.

> OCC should disclose the liquidation of the customer in the notes to the financial statements.

> The irrecoverable debt should be written off and disclosure should be made of the liquidation of the
customer in the notes to the financial statements.

Your answer:

OCC should disclose the liquidation of the customer in the notes to the financial statements.

Status:
Incorrect

ID: KA17AC_18_MC_106
Question 8:

Which of the following is the most appropriate action OCC should take in respect of the new
regulations?

> The financial statements should be amended to include a provision for the estimated costs of
compliance.

> A disclosure should be made in the financial statements regarding the new regulations and the
expected impact.

> The financial statements should be amended to include a provision for the estimated costs of
compliance and a disclosure should be made.

> The financial statements do not need to reflect any information regarding the new regulations until
they come into force.

Your answer:

A disclosure should be made in the financial statements regarding the new regulations and the expected
impact.

Status:
Correct

ID: KA17AC_18_MC_107
Question 9:

Consider the following statements regarding audit opinions and opinion wording:

Statement Opinion Opinion wording

1 Unmodified The financial statements give
a true and fair
view
2 Qualified Except for.... The financial
statements give
a true and fair view
3 Adverse The financial statements do
not give a true
and fair view
4 Disclaimer Do not express an opinion on
the financial
statements

Complete the following:

Taking the liquidation of the customer in isolation, the most appropriate audit opinion and opinion
wording if no action is taken by OCC is .

Your answer:

Statement 1

Status:
Correct

ID: KA17AC_18_MC_108
Question 10:

Consider the following statements regarding audit opinions and opinion wording:

Statement Opinion Opinion wording

1 Unmodified The financial statements give
a true and fair
view
2 Qualified Except for.... The financial
statements give
a true and fair view
3 Adverse The financial statements do
not give a true
and fair view
4 Disclaimer Do not express an opinion on
the financial
statements

Complete the following statement:

Taking the new regulations in isolation, the most appropriate audit opinion and opinion wording if no
action is taken by OCC is .

Your answer:

Statement 2

Status:
Correct

ID: KA17AC_18_MC_109
Question 11:

Read the following statements in respect of the offer of snacks:

(1) Gifts can be accepted if clearly insignificant and inconsequential.

(2) The snacks are likely to be seen to be a bribe to affect the auditor's judgement by a reasonable and
informed third party.

(3) The offer of the snacks should be referred to the audit partner and the decision to accept or reject the
offer should be documented on the audit file.

Complete the following:

Of the above statements, is/are true.

Your answer:

Only statements 1 and 3

Status:
Correct

ID: KA17AC_18_MC_110
Question 12:

Which TWO of the following statements are matched correctly to the threat arising?

>Statement: The FD Margaret Lewis has recently been recruited from your firm.

Alleged threat arising: Familiarity

>Statement: The audit team can help themselves to as many packets of chips and pretzels as they like
during the audit.

Alleged threat arising: Intimidation

>Statement: The FD has instructed you she is not to be disturbed by excessive questions.

Alleged threat arising: Self Interest

>Statement: The board has asked for advice on corporate governance best practise and internal controls.

Alleged threat arising: Self Review

Your answer:

Statement: The FD Margaret Lewis has recently been recruited from your firm.

Alleged threat arising: Familiarity

Statement: The FD has instructed you she is not to be disturbed by excessive questions.

Alleged threat arising: Self Interest

Status:
Incorrect

ID: KA17AC_18_MC_111
Question 13:

Which of the following statements best describes the action the auditor should take in respect of the
request for no-one other than the audit manager to ask questions during a weekly meeting?

> Resign from the audit.

> Refuse the request as the client has an obligation to provide the auditor with all information
requested.

> Ask the finance director if requests for urgent information can be made via email and all other
questions will be asked during the weekly meeting.

> Communicate the difficulties encountered with the finance director to the audit committee.

Your answer:

Refuse the request as the client has an obligation to provide the auditor with all information requested.

Status:
Incorrect

ID: KA17AC_18_MC_112
Question 14:

Which THREE of the following elements are required to comply with corporate governance best
practise?

>Internal audit function

>Audit committee

>Risk committee

>Nomination committee

>Remuneration committee

>Corporate governance committee

>Monitoring committee

Your answer:

Internal audit function

Audit committee

Corporate governance committee

Status:
Incorrect

ID: KA17AC_18_MC_113
Question 15:

Read the following and complete the statement:

(1)The two non-executive directors should not be members of the audit committee.

(2)The finance director should not be a member of the audit committee.

(3)At least two non-executive directors with no previous relationship to the company should be
appointed.

(4)The finance director can be a member of the audit committee if there are at least two independent
non-executives on the committee.

Of the above, is/are true in respect of the audit committee.

Your answer:

Only statements 2 and 3

Status:
Incorrect

ID: KA17AC_18_MC_114
Question 16:

List FOUR control objectives of a payroll system.

(4 marks)

Your answer:

1. Clock cards are being used to ensure that the employees are only being paid for what they worked
2. Payroll figure are calculated automatic by the payroll system once the hours are updated which
means that is less likeley to have any errors in calculations
3. All payments are recorded and the hour uploaded into the payroll system are being checked against
the ones on the time recording system
4. Standing data is kept up to date
5. Payments recorded in the period they relate to

ID: KA17AC_18_MC_115
Question 17:

In respect of the wages recording and payment system of Blake Co:

(i) Explain FIVE deficiencies in that system

(ii) Recommend a control to overcome each deficiency

(iii) Describe a test of control the auditor would perform to assess if each of these controls is operating
effectively.

Note: Prepare your answer using three columns headed Control deficiency, Control recommendation
and Test of control respectively.

(15 marks)

Your answer:

Deficiency Recommendation Test of control

The login process is not being There should be a person in place
monitored which means that to make sure that every employee
any employee could scan is signing in with only one
more that one card, this card.The computerised system
means that employees can be should print lists of employees
paid for work they haven't present as per the computer
done. system every day and the foreman
should then sign the list to to
confirm that it is right
Header1Header2Header3The Change the code word an make Observe the process
code world used to authorise sure that only authorised people by checking the work
and make payment is have access to it. Also make sure done by the clerk and
generally known around the that the pass code is not easy to the payroll
department so there is a risk guess. department
that dummy employees can be
set up by anyone.
The staff could collude by Header1The list of the active Check payroll record
setting up fake employee employees should be checked against list of
periodically for accuracy by employees to make
someone outside the payroll sure there are not fake
department or by the head of employees on the
finance. payroll
For termination of Use specific forms for starters and Select a sample of
employment, the details of leavers to ensure to prevent errors levers and joiners and
termination are being sent by This reduce the risk of incorrect trace the changes to
email from the department to payment being made to people the payroll system
the payroll department but the that no longer work for the
receipt is not being company
monitored

ID: KA17AC_18_MC_116
Question 18:

Describe the substantive procedures the auditor should perform to confirm Blake Co's payroll figure.

(6 marks)

Your answer:

1. Compare this year payroll figures with last year ones and check for any significant variances
2. Check the number of employees and compare with this year
3. Compare actual payroll figures with budgets
4. Make sure that this year opening balances are matching last years closing ones
5. Perform a proof of total wages and salaries incorporating joiners and leavers or the pay increases if
any have been given durig the year.

ID: KA17AC_18_MC_117
Question 19:

Blake Co is considering outsourcing its payroll department to an external payroll service provider in
order to reduce costs.

Explain the impact outsourcing the payroll function will have on the external audit of Blake Co.

(5 marks)

Your answer:

1. The audit team will not have easy access to the payroll records
2. It might be more difficult to get sufficient appropriate evidence in relation with the payroll records
3. Increase in detection risk
4. Additioanal procedures are required to ensure that the audit team is getting all the necesar
information in time.
5. The audit team can request information from the payroll company auditors in relation with the
controls in place.

ID: KA17AC_18_MC_118
Question 20:

Calculate FIVE ratios for both years which could assist when planning the audit.

(5 marks)

Your answer:

'000 000 '000 000

2017 2016

Gross Margin 0.358585858585859 0.355

=D15/D19 =F15/F19

Operating Margin 0.202020202020202 0.23

=D17/D19 =F17/F19

Trade receivables 40.5555555555556 31.025

=(22/D19)*365 =(17/F19)*365

Trade payables 37.3622047244095 36.7829457364341

=(13/D21)*365 =(13/F21)*365

Inv Holding period 31.6141732283465 22.6356589147287

=(11/D21)*365 =(8/F21)*365

Gross Profit 71 71

Net Profit 40 46

Revenue 198 200

Cost of Sales 127 129

=D19-D15 =F19-F15

ID: KA17AC_18_MC_119
Question 21:

Using the information provided and the ratios calculated, describe FIVE audit risks and explain the
auditor's response to each risk when planning the audit of Wover Co.

Note: Prepare your answer using two columns headed Audit risk and Auditor's response respectively.

(10 marks)

Your answer:

1. There is a very small drop in revenue compared with last year, considering that in the second half of
the year the sales were not as strong resulting in an overall reduction in revenue. There could be a risk
that the revenue is overstated (deliberately) considering that the company is willing to secure the loan
for the replacement of the production line.
2. Gross margin is slightly the same but as stated before, considering that the revenue has dropped in
the second half of the year compare with the previous year it could be that the revenue was overstates.
Also considering that 50 customers experienced severe safety issues so there was definitely an increase
in the cost of sales. assuming that the cost of repair has been paid by the company on customers behalf,
it might be a risk that the cost of sales are understated.
3. Receivables days has increased from approximately 31 days to 40 which means that some of the
customers are struggling to pay O/S balances which my cause cash flow problems for the company.
4. Payable days went from 28 to 37 which means that the fact that they are not being paid in time by the
customers they are experiencing difficulties in paying their suppliers. It could also be caused by an
understatement of the cost of sales.
5. Inventory days has increased from 22 days to 33 which could mean that they might have obsolete
items, so the inventory could be overstated

ID: KA17AC_18_MC_120
Question 22:

Explain FIVE items that should be included on every working paper.

(5 marks)

Your answer:

1. Name of the client

2. Period that is covered by the audit
3. Subject matter
4. Name and Signature of the member of staff that performed the audit
5. Name of the member of staff that reviewed the working papers

ID: KA17AC_18_MC_121
Question 23:

Explain the auditor's responsibilities in relation to fraud and error.

(5 marks)

Your answer:

The main difference between fraud and error is whether the underlying action that results in a
misstatement of the financial statements is intentional or not

It is not auditors job to detect the fraud, or in other words it is a low priority for the auditor to detect
fraud.

The main responsibility for the detection of fraud and error is with the ones charged with governance of
the company and with the managers.

The auditor has to make sure that he obtained enough evidence and assurance that financial statements
are free from material misstatement, so the auditors have a secound responsibility but they have to
remain sceptical.

ID: KA17AC_18_MC_122
Question 24:

Describe substantive procedures you should perform to obtain sufficient, appropriate audit evidence in
relation to:

(i)
Revenue (4 marks)
(ii) (6 marks)
Receivables
(iii) Sales related (3 marks)
bonus

Your answer:

Revenue

Compare the figure with the prior year and investigate any significant changes

Calculate gross margin and compare with last year

Compare revenue with the budget and investigate significant fluctuations

Check next year bank statement for possible payments received from clients in regards with o/s figures
and make sure that we haven't make any provisions or that we haven't accounted for them as
irrecoverable

Receivables

Compare the figure with the prior year and investigate any significant changes

Check the balance: total sales less allowance for irrecoverable receivables plus prepayments - only
analytical review for the prepayments as they are not material usually.

Sales related Bonus

Compare this year figures with last year and investigate the differences.
Compare with what was budgeted

ID: KA17AC_18_MC_123
Question 25:

The audit is nearly complete and the auditor's report is due to be issued next week. Your testing of
revenue identified that a material value of fictitious sales had been recorded and management have
adjusted the financial statements accordingly. Your testing of receivables concluded that the debts over
6 months old are likely to result in irrecoverable debts and should be written down. Management has
agreed to make an allowance of $390,000.

Describe the implications for the auditor's report as a result of the above information.

(2 marks)

Your answer:

They are only making an allowance for 390 000 compared with the 780 000 that is estimated to be old,
so only for the half of the figure.

390.000 is material to revenue @ 1.05 % but is not material to the profit account @4.02%

So it is a material misstatement but is not pervasive so the auditors opinion should be modified

A qualified opinion using Except for will be issued

The basis for opinion will change to basis to qualified opinion and it will explain the reason for the
qualified opinion and it will quantify the efect

ID: KA17AC_18_MC_124
A summary of your performance appears below.

Total Total Questions Attempted Score Max Score Scaled Score

Total 15 15 16 30 53.33%

Section A 15 15 16 30 53.33%

Browser information: Mozilla/5.0 (Windows NT 10.0; Win64; x64) AppleWebKit/537.36 (KHTML, like Gecko) Chrome/69.0.3497.100 Safari/537.36