Professional Documents
Culture Documents
Suggested Answers
Certificate in Accounting and Finance Spring 2016
Ans.1
(a)
(i)
(ii) The conclusion documented by the team is not correct as the confirmation received
from creditors only confirms the recorded amount and is not relevant for the purpose
of testing of unrecorded liabilities.
(b)
(i)
The audit team is required to discuss the matter with clients management and ask
them to send confirmation as per the normal sampling procedure of the audit firm.
In case the management does not agree, the audit team should evaluate the
implications of management's refusal on the auditor's assessment of the relevant risks
of material misstatement, including the risk of fraud, and on the nature, timing and
extent of other audit procedures;
(ii) Following information should be tested by the audit team to draw conclusion related
to unrecorded liabilities:
Ans.2
subsequent disbursements
unmatched receiving reports (Inventory Cutoff)
(a)
(b)
(i)
(ii)
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(a)
(b)
(i)
Make inquiries of management and others within the entity as to whether they have
any knowledge of any actual, suspected or alleged frauds and to obtain views about
the risks of fraud.
Evaluate any unusual or unexpected relationships identified in performing analytical
procedures which might indicate a risk of material fraud.
Evaluate information obtained from other risk assessment procedures to see if any
fraud risk factors exist.
Ans.4
(a)
The appointment of KCC is valid, as 90 days have not lapsed in case of outstanding bill.
However, the concerned partner should be requested to settle the amount of bill before the
expiry of 90 days as it will result in disqualification of KCC as auditors of NEL.
(b)
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(a)
Familiarity or intimidation threats may be created if a member of audit team joins the audit
client.
Following are the safeguards:
(i) Modifying the audit plan;
(ii) Assigning individuals to the audit team who have sufficient experience as compared to
the individual who has joined the client;
(b)
A loan from an audit client to an audit team member will not create a threat to
independence, if the loan is made under normal lending procedures, terms and conditions.
If the loan is not made under normal lending procedures, terms and conditions, a selfinterest threat would be created that would be so significant that no safeguard could reduce
the threat to an acceptable level. However, as the loan has already been disbursed, the only
safeguard available is to remove the manager from the audit team or ask him to settle the
lease obligation.
Ans.6
(a)
(b)
(c)
In order to evaluate the adequacy of internal audit function, the external auditor should
assess whether:
(i) The work was properly planned, performed, supervised, reviewed and documented;
(ii) Sufficient, appropriate evidence was obtained to enable internal auditors to draw
reasonable conclusions;
(iii) Appropriate conclusions were reached, consistent with any reports prepared;
(iv) Any exceptions or unusual matters were properly resolved.
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(e)
Professional Skepticism:
It refers to an attitude that includes a questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud, and a critical assessment of audit
evidence.
However, it does not mean that the auditors should disbelieve everything they are told, but
they should view what they are told with a skeptical attitude, and consider whether it
appears reasonable and whether it conflicts with any other evidence.
Ans.7
Ans.8
(a)
(i)
Planning stage The concept of materiality is used in determining the nature, timing
and extent of further audit procedures;
(ii)
(b)
(a)
In this case, the representation provided by the management contradicts with the audit
evidence obtained later and therefore we should:
(b)
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(i)
(ii)
(iii)
(iv)
(b)
The factors that should be considered in evaluating the adequacy of the experts work,
include:
Ans.10 (a)
Ans.9
An audit trail may not exist in paper form in an online system, but the computer program
should be written so as to generate the audit trail on request for any transaction.
(b)
data is continually processed and master files are being continually updated, and/or
it is difficult, if not impossible, for the system to provide a satisfactory audit trail for the
transactions, through the system.
an embedded audit facility may also print details of the transactions it has monitored,
or copy them to a computer file, so that the auditor can study the transactions.
Fees income may be recognized immediately on receipt of fees rather than recognized on
monthly basis as the services are rendered.
Discounts given to students may not be accounted for properly, resulting in overstatement of
revenue.
There is a risk that revenue related to sale of course material is in appropriately classified as
part of the university fees, as a result of which it may have been recognized proportionately
on the basis of time (services provided).
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Understand and test the system of recording revenue i.e. between sale of books and university
fees.
Ensure that revenue is booked for course material in respect of all registered students
irrespective of whether course material is taken by them or not.
Ensure that cost of books not yet claimed has been charged off in the accounts.
(THE END)
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