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Audit Exam
Audit Exam
Audit Exam
(1) The auditor watches the cashier performing the daily bank reconciliation process
(2) The auditor reviews year-end bank balances against prior year total to identify significant fluctuations
and discusses any unusual movements with management
(3) The auditor confirms directly with management whether any new bank accounts have been opened in
this financial year
(4) The auditor obtains a standard bank letter from each bank used by the company
(3) In respect of the loan accounts held with International Bank Co, which of the following audit
procedures would provide the best evidence to verify accrued interest at the accounting period end?
A. Inspect the year-end bank reconciliation and confirm accrued interest is included
B. Agree the interest charges per the cash book to the pre year-end bank statements
C. Inspect the bank confirmation letter to confirm the loan account interest rate is consistent with prior
year
D. Recalculate the accrued interest based on the outstanding loan value, interest rate and accrual period
(4) Which of the following audit procedures included in the audit programme tests for the EXISTENCE of
bank and cash?
A. Attend the cash count at the year end and reperform the count
B. Review all relevant bank statements to verify that the accounts are held under the name of Walker Co
C. Agree a sample of account balances detailed on the bank confirmation letters to the trial balance
D. Review the disclosure included in the financial statements to verify only bank accounts per the bank
letters are disclosed
(5) Which of the following audit procedures provide relevant evidence for the ACCURACY, VALUATION &
ALLOCATION assertion for share capital in the financial statements of Walker Co?
(1) Review board meeting minutes to identify matters relating to share capital, including ensuring proper
authority was given for any share capital changes
(2) Agree the authorised share capital disclosed in the financial statements to the company's constitution
documents
(3) Agree closing share capital balances in the trial balance to statutory records and current year draft
financial statements
(4) Inspect cash book to confirm cash receipts from rights issue have been appropriately recorded
A. 1 and 2 B. 1 and 3 C. 2 and 4 D. 3 and 4
It is 1 July 20X5. You are an audit manager at Doge & Co, a medium-sized firm with several offices. As
part of your role, you are responsible for undertaking procedures relating to the acceptance of new
clients. You are currently involved in the acceptance of four new clients.
Bradgate Co
Bradgate Co has invited Doge & Co to perform a limited assurance review of its financial statements.
Doge & Co does not provide any other services to the company.
Trimp Transport Co
The board of directors of Trimp Transport Co have set target key performance indicators (KPIs) to
assess the company's performance for the year ended 31 March 20X5. The board has asked Doge &
Co to perform an assessment of performance to 31 March 20X5 and to prepare a report for the
board as to whether the KPIs have been achieved. The board will provide access to books and
records relating to the KPIs. Doge & Co does not provide any other services to Trimp Transport Co.
Keegan Co
Keegan Co, an existing audit client, is considering setting up an internal audit department. The
directors are unsure whether to hire staff or to outsource the function. Keegan Co has approached
Doge & Co to enquire as to whether it could provide internal audit services.
Lette Co
Doge & Co has recently accepted a new client, Lette Co. The previous auditor, Catt & Co, resigned
from the audit in May 20X5. Doge & Co was appointed on 4 June 20X5. Lette Co is in the early stages
of legal action against Catt & Co for failing to detect a fraud.
Indicate, by clicking on the relevant boxes in the table below, whether each of the following
statements is true of limited assurance, reasonable assurance or both.
A. Enquire of management as to large and unusual items within the financial statements
B. Perform analytical procedures to understand the relationship between items within the financial
statements
C. Perform tests of control to understand the controls that are operating within the company
(3) The IAASB's Framework for Assurance Engagements (Framework) requires certain elements to be
present in every assurance engagement.
Which of the elements required by the Framework is NOT present in respect of the proposed
engagement for Trimp Transport Co?
(4) Identify, by clicking on the relevant boxes in the table below, whether each of the statements
relating to the possible provision of internal audit services to Keegan Co by Doge & Co is TRUE or
FALSE.
A. Catt & Co was auditing the company for the first time and the business was new to them
B. Due to tight reporting deadlines, Catt & Co had a limited amount of time to complete the audit
C. Catt & Co had relied on the truth of information given to them by the company's staff
It is 1 July 20X5. You are an audit supervisor of Willow & Co and you are involved in the audit of Ash
Co for the year ended 31 May 20X5. You have been allocated responsibility for the audit of bank and
cash and share capital.
Ash Co has various accounts with two banking institutions. It holds a number of longstanding
accounts with Silver Oak bank and a number of new accounts have been opened during the year
with Moneytree bank. However, the management of Ash Co has refused to grant Willow & Co
permission to obtain a bank confirmation letter from Moneytree bank. You have asked for an
explanation but have not received a satisfactory response.
The area of bank and cash has been deemed as high risk due to a number of errors which were
found during the prior year audit. The audit engagement partner has therefore emphasised the
importance of the procedures performed in this area of the financial statements.
Share capital
During the year to 31 May 20X5, Ash Co issued 100,000 $1 equity shares. Ash Co maintains all of its
own records in this area. The audit engagement partner has raised concerns over whether the
transaction has been carried out in compliance with appropriate laws and regulations.
(1) You are reviewing the audit plan for Ash Co and have allocated a number of procedures to be
performed on bank and cash to your audit assistant. In order to help your audit assistant perform
the work you want to give them more detail regarding the procedures.
Which type of audit procedure is being demonstrated by each of the following tests included in
the audit plan of Ash Co?
(1) Print out from Ash Co's online banking system provided by the accounts clerk
(2) Bank reconciliation prepared by the audit assistant using client documents
(3) Results of cash count performed by internal audit
(4) Bank confirmation letter received from Silver Oak bank
In order to respond to the increased level of risk you want to make sure you are using the most
reliable evidence.
Which of the following options correctly ranks the audit evidence, starting with the MOST
reliable?
A. 2, 4, 1, 3
B. 2, 3, 4, 1
C. 4, 3, 1, 2
D. 4, 2, 3, 1
(3) Which TWO of the following actions should Willow & Co take following Ash Co’s refusal to
allow Willow & Co to seek a bank confirmation from Moneytree bank?
C. A modified opinion must be issued on the grounds that insufficient evidence is available
D. Send the bank confirmation request without authorisation as the bank communicates directly
with the auditor
The following issues have been identified during the testing of the bank reconciliation:
(1) Cheques totalling $300,000 which were not posted until 2 June 20X5 are included in the cash
book at the year end
(2) Customer payments totalling $700,000 which were paid into the bank on 3 June 20X5 are
included in the cash book at the year end
(3) Bank charges for May 20X5 totalling $100,000 were not charged by the bank until June 20X5
What is the resultant effect on the bank and cash balance as a result of these issues?
(5) Which of the following procedures would address the audit engagement partner’s concern in
relation to the share issue?
A. Inspect board minutes for evidence of review regarding the terms of and approval of the share
issue
B. Inspect Ash Co's constitution documents for evidence that the share issue is permitted
C. Obtain a written representation from management to confirm that the share issue is in
compliance with laws and regulations
D. Agree the quantity and recipients of the share issue to Ash Co's share register
It is 1 July 20X5. You are an audit supervisor at York & Co and you are involved in the audit of
Lancaster Co for the year ended 31 May 20X5. The company owns a significant amount of non-
current assets including a number of properties.
Lancaster Co depreciates its properties, on the straight-line basis, at a rate of 5% per annum. The
draft depreciation charge on buildings for 20X5 is $2m compared with $1.7m in 20X4.
On 31 May 20X5, Property A was sold for sales proceeds equal to 40% of its original cost. The
property initially cost $6m and had been owned and depreciated for seven years.
The audit programme includes the following tests to be carried out in relation to additions made
during the year:
(1) Agree a sample of additions recorded in the non-current asset register to the cash book and
purchase invoice ensuring that the purchase date is accurate and it is recorded at the correct
amount
(2) Compare total budgeted additions to actual additions in the year and investigate and corroborate
any significant differences
Revaluation
On 31 May 20X5, the directors had all of the company’s remaining buildings revalued by an external
expert. In the detailed audit approach it states that York & Co will rely on this valuation as part of the
current year audit procedures.
(1) Which TWO of the following audit procedures would test for OVERSTATEMENT of Lancaster
Co's non-current assets?
A. Agree disposals recorded in the non-current asset register to cash book and sales invoice
B. Physically inspect a sample of assets selected from the non-current asset register
C. Inspect a sample of assets found at a location and agree to the non-current asset register
D. Inspect the condition of assets held to determine the need for any impairment
(2) Which of the following assertions are tested by the procedures included in the audit
programme for additions?
(1) Completeness
(2) Classification
(3) Existence
Which TWO of the following are substantive audit procedures for testing depreciation?
A. Review the non-current asset register to ensure that all assets are assigned a useful life
B. Perform a proof in total for the depreciation charge of $2m included in the financial statements
and investigate any significant differences
D. Discuss with management the reasons for the $300,000 difference in the current year
depreciation compared to the prior year
(4) Recalculate the expected loss on disposal of Property A, giving your answer to ONE decimal
place.
$ m
(5) In respect of the revaluation, which TWO of the following statements regarding reliance on the
external expert are TRUE?
A. In line with ISA 620 Using the Work of an Auditor's Expert, reliance can only be placed on an
expert appointed by York & Co
B. Obtaining the valuation report would constitute sufficient and appropriate evidence over the
carrying amount of the buildings
C. Reference to the work of the external expert should not be included in the auditor's report
D. The objectivity of the valuer must be assessed before placing reliance on the valuation report
It is 1 July 20X5. You are an audit manager of Brown & Green Co and you are currently working on
the completion stage of the audit of Strawberry Co, a listed company specialising in the manufacture
of smart phone accessories, for the year ended 31 March 20X5. The draft financial statements of
Strawberry Co show revenue for the year of $500m and total assets of $210m.
You are reviewing the outcome of the audit work documented by your team. You have become
aware of the following two issues:
On 18 March 20X5, the board of directors approved a strategic plan which will help it increase the
sales of smart phone chargers in the future. The strategic plan is to upgrade Strawberry Co's
manufacturing facilities, which will allow it to manufacture higher quality and technologically
advanced products. To fund the planned upgrade, the company issued equity share capital to the
general public in May 20X5, which generated cash of $4m.
Strawberry Co received a letter dated 15 May 20X5, from the government environmental agency
advising that water samples taken from a public lake close to Strawberry Co's manufacturing site
have shown traces of a harmful substance which is produced during its manufacturing process. The
agency has concluded that Strawberry Co is the source of the contamination and is liable for a fine.
The board of directors has denied any responsibility and have forwarded the case to the company’s
legal advisers.
(1) Which of the following statements correctly describes Brown & Green Co's responsibility in
relation to subsequent events occurring between the date on which the auditor's report is signed
and the date on which the financial statements are issued?
A. Brown & Green Co should obtain sufficient and appropriate audit evidence and design audit
procedures to ensure that all subsequent events are identified
B. Brown & Green Co should obtain a list of subsequent events from the directors of Strawberry Co
and include these in the written representation letter
C. Brown & Green Co has no duty to perform any procedures after the date on which the auditor's
report is signed and therefore any subsequent events in this period will be dealt with in next year's
audit
D. Brown & Green Co should discuss any subsequent events they become aware of with the
directors of Strawberry Co to determine whether the financial statements need amended
(3) The audit team has performed various substantive procedures in order to obtain sufficient and
appropriate audit evidence relating to the potential fine for environmental damage.
Which TWO of the following are appropriate audit procedures to perform in respect of the letter
from the government environmental agency?
A. Send a letter addressed to the government environmental agency to confirm the matter
B. Examine post year-end board meeting minutes to identify any reference to further developments
of the case
C. Review the correspondence with the company’s legal advisers to assess the probable outcome of
the case
D. Test the effectiveness of the client's internal control systems in relation to the prevention of
environmental damage
(5) The two issues will be included in a written representation from management. All audit work will
be finished by 31 July 20X5. The auditor's report is due to be signed by Brown & Green Co on 28
September 20X5. Strawberry Co's board plans to issue the financial statements on 21 October 20X5
which will be followed by an annual general meeting on 30 October 20X5.
Which of the following would be the most appropriate date for the directors of Strawberry Co to
sign the written representation?
A. 31 July 20X5
B. 28 September 20X5
C. 21 October 20X5
D. 30 October 20X5