Which of the following is a DISADVANTAGE of recording accounting and control systems using

Which of the following is NOT a responsibility of the auditor?

A.To provide an opinion on the truth and fairness of the financial statements

B.To conduct an audit in accordance with International Standards on Auditing

C.To express an opinion on the company’s going concern status

ct; voluntary disclosure of information may be necessary in certain situations. For which TWO of the following situations should an auditor make VOLUNTARY disclosure? (1) If an auditor knows or suspects his client is engaged in money laundering (2) Where disclosure is made to non-governmental bodies (3) Where it is in the public interest to disclose (4) If an auditor suspects his client has committed terrorist offences

A.1 and 4

B.1 and 3

C.2 and 4

D.2 and 3

Which of the following is NOT an audit software technique?

A.Using computer programs to extract a sample for a receivables circularisation

B.Running a computer program to test the addition of the cash book

C.Using a computer to perform an analytical review comparison of administration expenses against the prior year

D.Entering a sample of dummy sales orders through the computer system which takes customers over their credit limit to ensure the system rejects the orders

ction?

A.There will always be a reduction in costs

B.Provides access to specialist skills

C.Can provide access to an internal audit team immediately

rade receivables? (1) Agreeing a sample of goods despatched notes to sales invoices and to the sales ledger (2) Undertaking a receivables circularisation (3) Review of post year-end cash receipts, if these relate to year-end receivables follow through to the sales ledger (4) Recalculating the allowance for uncollectible accounts

A.1 and 3

B.2 and 4

C.2 and 3

D.1 and 4

ort other evidence. For which of the following matters would a written representation NOT be suitable as audit evidence?

A.That all deficiencies in internal control known to management have been communicated to the auditor

B.That subsequent events requiring adjustment or disclosure in the financial statements have been dealt with appropriately

C.That the payroll charge for three months of the year when the accounting records were unavailable is correctly stated

D.That management has fulfilled their responsibility for the preparation and presentation of the financial statements

and scope of the audit (2) Results of previous audits (3) Management’s responsibilities (4) Need to maintain professional scepticism

A.1 and 2

B.1 and 3

C.2 and 4

D.3 and 4

e years. The company is funded partly through overdrafts and loans and also by several large shareholders; the year end is 30 April 2014.

Clarinet has experienced significant growth in previous years; however, in the current year a new competitor, Drums Design Co (Drums), has entered the market and through competitive pricing has gained considerable market share from Clarinet. One of Clarinet’s larger customers has stopped trading with them and has moved its business to Drums. In addition, a number of Clarinet’s specialist developers have left the company and joined Drums. Clarinet has found it difficult to replace these employees due to the level of their skills and knowledge. Clarinet has just received notification that its main supplier who provides the company with specialist electrical equipment has ceased to trade.

Clarinet is looking to develop new products to differentiate itself from the rest of its competitors. It has approached its shareholders to finance this development; however, they declined to invest further in Clarinet. Clarinet’s loan is long term and it has met all repayments on time. The overdraft has increased significantly over the year and the directors have informed you that the overdraft facility is due for renewal next month, and they are confident it will be renewed.

The directors have produced a cash flow forecast which shows a significantly worsening position over the coming 12 months. They are confident with the new products being developed, and in light of their trading history of significant growth, believe it is unnecessary to make any disclosures in the financial statements regarding going concern.

At the year end, Clarinet received notification from one of its customers that the hardware installed by Clarinet for the customers’ online ordering system has not been operating correctly. As a result, the customer has lost significant revenue and has informed Clarinet that they intend to take legal action against them for loss of earnings. Clarinet has investigated the problem post year end and discovered that other work-in-progress is similarly affected and inventory should be written down. The finance director believes that as this misstatement was identified after the year end, it can be amended in the 2015 financial statements.

Required:

(a) Describe the procedures the auditors of Clarinet Co should undertake in relation to the uncorrected inventory misstatement identified above. (4 marks)

(b) Explain SIX potential indicators that Clarinet Co is not a going concern. (6 marks)

(c) Describe the audit procedures which you should perform. in assessing whether or not Clarinet Co is a going concern. (6 marks)

(d) The auditors have been informed that Clarinet’s bankers will not make a decision on the overdraft facility until after the audit report is completed. The directors have now agreed to include some going concern disclosures.

Required:

Describe the impact on the audit report of Clarinet Co if the auditor believes the company is a going concern but that this is subject to a material uncertainty. (4 marks)

as recently become a listed company. In accordance with corporate governance principles Saxophone maintains a small internal audit department. The directors feel that the team needs to increase in size and specialist skills are required, but they are unsure whether to recruit more internal auditors, or to outsource the whole function to their external auditors, Cello & Co.

Saxophone is required to comply with corporate governance principles in order to maintain its listed status; hence the finance director has undertaken a review of whether or not the company complies.

Bill Bassoon is the chairman of Saxophone, until last year he was the chief executive. Bill is unsure if Saxophone needs more non-executive directors as there are currently three non-executive directors out of the eight board members. He is considering appointing one of his close friends, who is a retired chief executive of a manufacturing company, as a non-executive director.

The finance director, Jessie Oboe, decides on the amount of remuneration each director is paid. Currently all remuneration is in the form. of an annual bonus based on profits. Jessie is considering setting up an audit committee, but has not undertaken this task yet as she is very busy. A new sales director was appointed nine months ago. He has yet to undertake his board training as this is normally provided by the chief executive and this role is currently vacant.

There are a large number of shareholders and therefore the directors believe that it is impractical and too costly to hold an annual general meeting of shareholders. Instead, the board has suggested sending out the financial statements and any voting resolutions by email; shareholders can then vote on the resolutions via email.

Required:

(a) Explain the advantages and disadvantages for each of Saxophone Enterprises Co AND Cello & Co of outsourcing the internal audit department.

Note: The total marks will be split as follows:

Saxophone Enterprises Co (8 marks)

Cello & Co (2 marks) (10 marks)

(b) In respect of the corporate governance of Saxophone Enterprises Co:

(i) Identify and explain FIVE corporate governance weaknesses; and

(ii) Provide a recommendation to address each weakness.

Note: The total marks will be split equally between each part. (10 marks)

work of stores in countries across Europe. The company’s year end is 30 June 2014. You are the audit senior of Piano & Co. Recorder is a new client and you are currently planning the audit with the audit manager. You have been provided with the following planning notes from the audit partner following his meeting with the finance director.

Recorder purchases goods from a supplier in South Asia and these goods are shipped to the company’s central warehouse. The goods are usually in transit for two weeks and the company correctly records the goods when received. Recorder does not undertake a year-end inventory count, but carries out monthly continuous (perpetual) inventory counts and any errors identified are adjusted in the inventory system for that month.

During the year the company introduced a bonus based on sales for its sales persons. The bonus target was based on increasing the number of customers signing up for 24-month phone line contracts. This has been successful and revenue has increased by 15%, especially in the last few months of the year. The level of receivables is considerably higher than last year and there are concerns about the creditworthiness of some customers.

Recorder has a policy of revaluing its land and buildings and this year has updated the valuations of all land and buildings.

During the year the directors have each been paid a significant bonus, and they have included this within wages and salaries. Separate disclosure of the bonus is required by local legislation.

Required:

(a) Describe FIVE audit risks, and explain the auditor’s response to each risk, in planning the audit of Recorder Communications Co. (10 marks)

(b) Explain the audit procedures you should perform. in order to place reliance on the continuous (perpetual) counts for year-end inventory. (3 marks)

(c) Describe substantive procedures you should perform. to confirm the directors’ bonus payments included in the financial statements. (3 marks)

The finance director of Recorder informed the audit partner that the reason for appointing Piano & Co as auditors was because they audit other mobile phone companies, including Recorder’s main competitor. The finance director has asked how Piano & Co keeps information obtained during the audit confidential.

Required: (d) Explain the safeguards which your firm should implement to ensure that this conflict of interest is properly managed. (4 marks)