You are an audit senior of Beech & Co and have been allocated to the audit of Willow W

nal step before they form. their audit opinion. As part of this process they undertake a number of procedures.

Which of the following procedures would an auditor NOT undertake as part of the overall review of the financial statements?

A.Reviewing the financial statements to ensure they are consistent with the auditor’s knowledge of the business and the results of their audit work

B.Performing analytical procedures on the financial statements to form an overall conclusion on the financial statements

C.Undertaking a review of subsequent events to identify whether any adjustment or disclosure is required in the financial statements

D.Reviewing the financial statements to ensure compliance with accounting standards and local legislation disclosure

Which of the following is NOT a principle of the UK Corporate Governance Code?

A.There should be a rigorous and transparent procedure for the appointment of new directors to the board

B.The board should use the annual general meeting (AGM) to communicate with investors

C.The non-executive chairman should decide on the remuneration of all directors

D.All directors should receive induction training on joining the board

Which of the following is NOT an inherent limitation of internal control systems?

A.Insufficient segregation of duties

B.Possibility that employees may collude together fraudulently

C.Possibility of human error in undertaking tasks

Which of the following is a substantive audit procedure for wages and salaries?

A.Inspect a sample of clock cards for evidence of authorisation by a responsible official

B.Recalculate a sample of payroll deductions such as employment taxes to confirm accuracy

C.Attempt to access and make changes to the payroll master file using the log on for a junior clerk

ding the Entity and Its Environment describes the five components of an entity’s internal control.

Required:

Identify and briefly explain the FIVE components of an entity’s internal control. (5 marks)

(b) Bonsai Trading Co (Bonsai) manufactures electrical equipment, and its year end is 30 September 2015. You are the audit supervisor of Poplar & Co and are developing the audit programmes for the forthcoming interim audit. The company’s internal audit department has provided you with documentation relating to the non-current assets cycle including the related controls listed below.

– Bonsai has a capital expenditure committee and all purchase orders for capital items are required to be authorised by this committee.

– On receipt, each asset is assigned a unique serial number and this is recorded on the asset and in the non-current assets register.

– When the asset arrives, a goods received note (GRN) is completed which details the nature of the expenditure (i.e. whether it is capital or revenue), and the GRN classification is reviewed and initialled by a responsible official. Copies of the GRNs relating to capital expenditure are then submitted to the finance department for updating of the non-current assets register.

– Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.

– Access to the non-current assets register is restricted through passwords to a small number of staff in the finance department.

Required:

Describe a test of control which the auditor of Bonsai Trading Co would perform. to assess whether or not each of the non-current asset controls listed above is operating effectively. (5 marks)

if any, is/are correct?

(1) International Standards on Auditing (ISAs) are issued by the International Accounting Standards Board (IASB) and provide guidance on the performance and conduct of an audit

(2) In the event that ISAs differ from local legislation in a specific country, auditors must comply with the requirements of the ISAs

A.1 only

B.2 only

C.Both 1 and 2

D.Neither 1 nor 2

on-current assets?

A.Select a sample of assets included in the non-current asset register and physically verify them at the client premises

B.Review the repairs and maintenance expense account to identify any items of a capital nature

C.For assets disposed of, agree the sale proceeds to supporting documentation and cash book

d?

A.Recalculation involves the auditor’s independent execution of procedures or controls which were originally performed as part of the entity’s internal control

B.Confirmation consists of seeking information of knowledgeable persons, within the company or outside the company

C.Reperformance consists of checking the mathematical accuracy of documents or records

D.Observation consists of looking at a procedure or process being performed by others

ansactions and events for the year under audit; and

(ii) For each identified assertion, describe a substantive procedure relevant to the audit of REVENUE. (8 marks)

(b) Hawthorn Enterprises Co (Hawthorn) manufactures and distributes fashion clothing to retail stores. Its year end was 31 March 2015. You are the audit manager and the year-end audit is due to commence shortly. The following three matters have been brought to your attention.

(i) Supplier statement reconciliations

Hawthorn receives monthly statements from its main suppliers and although these have been retained, none have been reconciled to the payables ledger as at 31 March 2015. The engagement partner has asked the audit senior to recommend the procedures to be performed on supplier statements. (3 marks)

(ii) Bank reconciliation

During last year’s audit of Hawthorn’s bank and cash, significant cut off errors were discovered with a number of post year-end cheques being processed prior to the year end to reduce payables. The finance director has assured the audit engagement partner that this error has not occurred again this year and that the bank reconciliation has been carefully prepared. The audit engagement partner has asked that the bank reconciliation is comprehensively audited. (4 marks)

(iii) Receivables

Hawthorn’s receivables ledger has increased considerably during the year, and the year-end balance is $2·3 million compared to $1·4 million last year. The finance director of Hawthorn has requested that a receivables circularisation is not carried out as a number of their customers complained last year about the inconvenience involved in responding. The engagement partner has agreed to this request, and tasked you with identifying alternative procedures to confirm the existence and valuation of receivables. (5 marks)

Required:

Describe substantive procedures you would perform. to obtain sufficient and appropriate audit evidence in relation to the above three matters.

Note: The mark allocation is shown against each of the three matters above.

completely and accurately invoiced?

(1) Good despatched notes are matched to sales invoices

(2) Sales invoices are sequentially numbered

(3) Sales invoices are matched to customer orders

(4) Regular review of unfulfilled orders

A.1 and 2

B.2 and 4

C.2 and 3

D.1 and 4