Topic: Audit evidence

Search 500 + past questions and counting.

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

Question

You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.

The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:

Provision for litigation (recognized in financial statements): ₦96 million
Litigation cases as defendant: 50
Litigation cases as plaintiff: 10
Claims in favor of the Bank: ₦2.7 billion
Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Financial Disclosure, IAS 37, Litigation, Provisions
Level: Level 3

Topic: Audit evidence
Series: NOV 2017

AA – Nov 2023 – L2 – Q2 – Audit Evidence

Discuss requirements and methods for designing an audit sample and circumstances when sampling may be inappropriate.

Question

ISA 530 Audit sampling states that the objective of the auditor when using audit sampling is to provide a reasonable basis to draw conclusions about the population from which the sample is drawn.

Required:

a. In accordance with ISA 530, what are the requirements the auditor should consider in designing a sample size? (6 Marks)

b. Explain FIVE sampling methods that are available for the use of the auditor. (10 Marks)

c. State FOUR circumstances where sampling may not be appropriate for use by the auditor. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Audit Methods, ISA 530, Non-Sampling Circumstances, Sampling
Level: Level 2

Topic: Audit evidence

AA – May 2016 – L2 – Q7a – Audit Evidence

Identify additional information needed to determine the audit opinion for Musky Fresh Ltd following supplier difficulties.

Question

Musky Fresh Limited has been in existence, for a number of years, importing perfume. The managing director had built up the business using contacts he already had in the industry. The company imports only one brand of perfume which is manufactured exclusively by one company. The perfume is distributed via ‘shops within shops’ at 20 branches of a well-known store. Under this agreement, Musky Fresh Limited pays a percentage of its takings to the store, with a minimum annual payment of N100,000 per store.

The audit is nearing completion, but you have just heard that the Arabian manufacturer is facing serious financial difficulties, and that supplies have ceased.

Required:

a. Set out the further information the auditor would require before reaching his audit opinion. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit opinion, Financial difficulties, Going Concern, Supplier Risks, Trade Payables
Level: Level 2

Topic: Audit evidence
Series: MAY 2016

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

Question

Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Planning, Audit Risk, Control Systems, Inventory Management, Material Misstatement
Level: Level 2

Topic: Audit evidence, Planning an Audit, Risk Assessment and Internal Control
Series: MAY 2016

AA – Nov 2022 – L2 – Q4 – Audit Evidence for Engineering Assets and Liabilities

Addressing audit evidence for engineering company assets and liabilities, including procedures for confirmations and plant disposals.

Question

You are part of an audit team engaged on the audit of an engineering company which has a substantial amount of plant and machinery in its books. While reviewing the accounts, you also observed that there were some current assets and liabilities that may require external confirmations.

Required:

a. How would you establish the amount and level of audit evidence required for the current assets and liabilities? (5 Marks)

b. State which procedures will be applied to generate audit evidence in the following scenarios:

i. Confirming the accuracy of figures in the trade receivables account
ii. Confirming that the plant and machinery purchased in the year is actually in use during the year
iii. Ascertaining that the change in performance is in line with expectations
iv. Confirming the accuracy of the total receivable figures in the statement of financial position
v. Confirming contingent liability as to legal fees (5 Marks)

c. State the audit procedures you would take concerning the disposal of plant and machinery. (5 Marks)

d. State the requirements of ISA 505 concerning maintaining control over the external confirmation requests of current assets and liabilities. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Current Liabilities, Engineering Assets, External Confirmations, ISA 505 Compliance, Plant and Machinery Disposal
Level: Level 2

Topic: Audit evidence
Series: NOV 2022

AA – Nov 2014 – L2 – Q2 – Audit Evidence

Discuss factors affecting sufficiency of audit evidence and audit procedures for current liabilities in Radcliffe Co.

Question

Radcliffe Co.

ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”

Required:

a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)

b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:

Description	2013	2012
Trade payables	884,824	816,817
Accruals	56,903	51,551
Provision for legal action	60,000	–
Total	1,001,727	868,368

The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.

List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.

Marks are allocated as follows:

Trade payables (9 Marks)
Accruals (3 Marks)
The provision for legal action (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Audit Judgment, Current Liabilities, ISA 500, Substantive Procedures
Level: Level 2

Topic: Audit evidence

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

Question

JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:

i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;

ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;

iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;

iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and

v. Figures in the financial statements could not be traced to the respective working papers.

As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.

You are required to explain:

a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Audit Procedures, Documentation, Quality control
Level: Level 2

Topic: Audit Documentation, Audit evidence
Series: MAY 2021

AA – May 2017 – L2 – SA – Q1 – Audit Evidence

Analysis and identification of unusual features in Abricon Nigeria Ltd.'s profit and loss for audit purposes.

Question

The following is the statement of Profit or Loss and other comprehensive income of ABRICON NIGERIA LIMITED for the year ended December 31, 2016.

ABRICON NIGERIA LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016

Requirements:

(a) Perform analytical tests on the figures given. (16 Marks)

(b) Identify unusual features. (8 Marks)

(c) Provide possible explanations why some apparently unusual items were not selected in (b) above. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Analytical procedures, Financial Ratios, Income Statement Analysis, Profit or Loss Statement
Level: Level 2

Topic: Audit evidence
Series: MAY 2017

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

Question

Promise and Treasure are two good childhood friends. After their secondary education, Promise traveled abroad to further his education and obtained his degrees there. Treasure attended a university in Nigeria and graduated with a second-class lower degree. During his time abroad, Promise met some foreign associates and decided to start a company in Nigeria with Treasure.

The company, named Promise and Treasure Company Nigeria Limited, specializes in importing steel products with future plans to set up a local factory. The first-year accounts were prepared as of December 31, 2020. Your firm has been appointed as auditors for the company. Upon completing the audit, you requested a written representation from management. The Managing Director found this request unusual, as he believed all necessary information and documents had already been provided.

Required:

a. Explain to the Managing Director the objectives of the auditor in obtaining a written representation as per ISA 580. (4 Marks)

b. State the steps the auditor should take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. State THREE matters that are required of management in the letter of representation in line with ISA 580, requiring specific representation from management. (3 Marks)

d. Highlight SEVEN aspects of the form and contents of a letter of representation. (14 Marks)

e. State the steps the auditor should take if management refuses to provide the requested written representation. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Audit Process, Auditor's Actions, ISA 580, Management Representation, Written Representation
Level: Level 2

Topic: Audit evidence
Series: MAY 2023

AA – May 2024 – L2 – SA – Q3 – Audit evidence

This question tests knowledge on reasons for obtaining letters of representation from clients' management, steps to take if representations are contradicted, and drafting a letter of representation.

Question

You are the Audit Senior-in-charge of the audit of Edinburg Nigeria Limited. The management of the company made some representations to you, which include:

Inventory worth ₦15 million in its only branch in Niger Republic, which you couldn’t visit because of the ongoing civil unrest in that country;
A donation of ₦500,000 was made to a motherless babies home by the Chairman but it was not receipted; and
The chairman received medical treatment amounting to ₦600,000 during his official visit to Germany to negotiate with equipment vendors, and he did not come back with any documentary evidence.

You have reported these matters to the partner of your firm, Olumisi Oregun & Co.

Required:

a. Explain two reasons for obtaining letters of representation from clients’ management. (4 Marks)

b. Explain three steps you will take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. Draft a letter of representation, which the management of Edinburg Nigeria Limited will present to your firm. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Contradictions, Client Representations, Procedures, Representation Letters
Level: Level 2

Topic: Audit evidence
Series: MAY 2024

AA – May 2019 – L2 – Q3 – Audit Evidence

Explanation of materiality, its application stages in audits, and discussion of the "true and fair view" phrase in financial reporting.

Question

When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. He gives an opinion on whether the financial statements present fairly in all material respects the financial position and performance of the entity.

You are required to:

a. Explain the term “Materiality”. (4 Marks)

b. Identify the stages in the audit when the auditor should apply the concept of materiality. (8 Marks)

c. Discuss the phrase “true and fair view” in this context. (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Audit strategy, Financial Statements, Materiality, True and Fair View
Level: Level 2

Topic: Audit evidence
Series: MAY 2019

AA – Nov 2018 – L2 – Q6 – Audit Evidence

Explains the factors auditors consider for sufficient evidence, reliability principles, and steps to take when audit evidence is insufficient.

Question

The auditor is required by ISA 500 to design and perform appropriate audit procedures for obtaining sufficient and appropriate audit evidence.

Required:
a. Identify five factors that an auditor will consider in determining what constitutes sufficient audit evidence.
(5 Marks)

b. Explain five principles that would assist the auditor in assessing the reliability of audit evidence.
(5 Marks)

c. What steps must the auditor take if he discovers that the evidence obtained is insufficient to form an opinion?
(5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Audit Testing, ISA 500, Reliability, Sufficient Evidence
Level: Level 2

Topic: Audit evidence
Series: NOV 2018

AA – Nov 2018 – L2 – Q5 – Audit Evidence

Outline the audit tests for purchased goodwill and development projects, and the conditions for recognizing development projects in financial statements.

Question

The intangible assets that can be recognized in the statement of financial position are purchased goodwill, intangibles having a readily ascertainable market value, and development costs.

Required:
a. State five audit tests required to obtain audit evidence on purchased goodwill.
(5 Marks)

b. Identify five audit tests relevant to obtaining evidence on development projects.
(5 Marks)

c. Itemize five conditions that must be fulfilled before development projects can be recognized in the financial statements.
(5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Development Costs, IAS 38, Intangible Assets, Purchased Goodwill
Level: Level 2

Topic: Audit evidence
Series: NOV 2018

AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting

Evaluate quality control issues and their implications for audit completion, including actions to be taken.

Question

The audit of Nkwa Ltd’s financial statements for the year ended 30 November 2022 is nearing completion, and the auditor’s report is due to be signed next week. Nkwa Ltd manufactures parts and components for the aviation industry. You are conducting an engagement quality control review on the audit of Nkwa Ltd, which is a listed entity and a significant new client of your firm. The draft financial statements recognize revenue of GH¢8.7 million, assets of GH¢15.2 million, and profit before tax of GH¢1.8 million.

You have identified the following issues as a result of your review:

a) The planned audit approach to trade payables was to place reliance on purchasing controls and keep substantive tests to a minimum. During control testing on trade payables, from a random statistical sample, the audit team identified three purchase orders that had not been authorized by the procurement manager. On review of the supporting documentation, the audit team concluded that the items were legitimate business purchases and therefore decided that no additional procedures were required. (4 marks)

b) Following a review of petty cash transactions, the audit assistant identified that the petty cashier paid for taxi fares for personal, non-business journeys with a total value of GH¢175. Following discussions with the Audit Assistant, you have ascertained that he did not report the matter as the amount is immaterial. The audit assistant also commented that the petty cashier is his brother, and that he did not want to get him into trouble. (6 marks)

c) Cut-off testing on revenue has identified two goods despatch notes, dated 2 December 2022, for items sent to Chinn Co, with a combined sales value of GH¢17,880, which had been included in revenue for the year ended 30 November 2022. The client’s financial controller, David Mount, has explained that Chinn Co does not order on a regular basis from Nkwa Ltd. In the absence of a regular payment history with Chinn Co, and in order to minimize the receivables collection period from this particular customer, the sales invoice was raised and sent to the customer on the same day that the sales order was received. The average time period between the receipt of an order and despatching the goods to the customer is approximately one to two weeks. The audit working papers have concluded that no further investigation is necessary. (6 marks)

d) The Finance Director, Leslie Gray, has not completed the tax computation for the year ended 30 November 2022. He has recently asked the audit assistant to compute the company’s tax payable for the year on the basis that as a newly qualified chartered accountant, the audit assistant was more up to date with recent changes in tax legislation. (4 marks)

Required:
Evaluate the quality control issues and the implications for the completion of the audit, including any further actions that should be taken by your audit firm. Your answer should include the matters to be communicated to management and those charged with governance in relation to the audit of Nkwa Ltd.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Completion, Audit evidence, Communication with Governance, Quality control
Level: Level 3

Topic: Audit evidence, Reporting, The audit approach
Series: JULY 2023

AAA – Dec 2023 – L3 – Q3 – Audit Evidence | Evaluation and Review

Assess the risk of material misstatement and audit implications related to goodwill impairment, accounting policies, auditor’s opinion, and going concern.

Question

As the Audit Manager for Grep & Co., you are currently overseeing the audit of Kellwin Ltd., a company operating in the food processing industry. The audit for the financial year ended 31 October 2023 is nearing completion. However, several issues have been brought to your attention by the audit team, requiring your review and further action.

a) Goodwill Impairment
Kellwin Ltd. acquired a subsidiary, Fresh Foods Plc, on 1 November 2021. The purchase consideration for the acquisition was GH¢18 million. The goodwill arising on the acquisition was recognized at GH¢3 million in Kellwin Ltd.’s consolidated financial statements for the year ended 31 October 2022. The directors have conducted an impairment review of goodwill and have concluded that no impairment is necessary, with the carrying amount of goodwill remaining at GH¢3 million as at 31 October 2023. The directors have explained that the recoverable amount of the cash-generating unit (CGU) to which the goodwill has been allocated exceeds the carrying amount. (8 marks)

b) Accounting Policies
During the audit, it was identified that Kellwin Ltd. changed its accounting policy for recognizing revenue from contracts with customers. Previously, revenue was recognized when goods were delivered to customers. However, from 1 January 2023, the company started recognizing revenue when the goods were dispatched from the warehouse. This change was applied retrospectively, and the comparative figures in the financial statements were restated. The impact of this change is an increase in revenue by GH¢1.5 million for the year ended 31 October 2023. The directors have justified the change by stating that it provides more relevant information to users of the financial statements. (6 marks)

c) Auditor’s Opinion and Going Concern
Kellwin Ltd. has experienced significant financial difficulties during the year due to adverse economic conditions. As a result, the company has incurred a net loss of GH¢2 million and has breached its loan covenants. The directors have initiated discussions with the company’s bank to secure a waiver of the covenant breaches and to obtain additional funding. The financial statements have been prepared on a going concern basis, and the directors are confident that they will secure the necessary funding. However, the negotiations with the bank are still ongoing, and there is significant uncertainty regarding the company’s ability to continue as a going concern. (6 marks)

Required:
i) Assess the risk of material misstatement in relation to each of the issues described above.
ii) For each issue, state the audit procedures that should be performed to address the risks identified.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accounting Policies, Auditor's Opinion, Going Concern, Goodwill Impairment, Group Audits, IAS 36, Subsequent Events
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: DEC 2023

AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review

Evaluate the accounting treatment of cash-settled share-based payments, regulatory penalties, and property valuation, and outline relevant audit procedures for each.

Question

You are the Manager responsible for the audit of Rail Expert Plc, a listed entity whose principal activity is the operation of a regional railway network. The audit for the year ended 28 February 2021 is the first year your firm is auditing Rail Expert Plc. The draft financial statements received from your client indicated a total asset of GH¢58 million and a profit before tax of GH¢7.4 million. The detailed audit fieldwork has started, and the audit supervisor has brought the following matters to your attention in relation to the testing of key accounting estimates:

a) Cash-settled share-based payment scheme
On 1 March 2020, Rail Expert Plc granted 550,000 share appreciation rights to 55 executives and senior employees of the company, with each eligible member of staff receiving 10,000 of the rights. The fair value of the rights was estimated on 28 February 2020 by an external expert using an options pricing model at GH¢4.50 each. Rail Expert Plc prides itself on good employee relations, and the senior management team has estimated that all 55 staff will qualify for the rights when they vest three years after the granting of the rights on 1 March 2020. The company recognized an expense of GH¢825,000 with its associated liability in the draft accounts. (7 marks)

b) Regulatory penalties
Rail Expert Plc has been subject to a review by the national railways regulator following a complaint from a member of staff with safety concerns. The regulator identified breaches in safety regulations and issued a penalty notice on 30 September 2020. Rail Expert Plc has appealed against the initial penalty payable. Negotiations with the regulator are still ongoing, and the amount payable has not yet been finalized. Rail Expert Plc currently estimates that the total penalty payable as a result of the breach will be GH¢1.3 million, which it expects to repay in equal annual installments over the next ten years, with the first payment falling due on 1 March 2021. The company’s draft statement of profit or loss for the current year recognizes an expense of GH¢1.3 million, and the draft statement of financial position includes a liability for the same amount. (7 marks)

c) Property development
Rail Expert Plc owns an industrial property which it has historically used as a maintenance depot for its engines and carriages. The company has an accounting policy of revaluing its properties to fair value, and at the interim audit, it was noted that the depot was recorded at a carrying amount of GH¢2.5 million in the non-current asset register. During the first week of the audit fieldwork, the audit supervisor identified a year-end journal which has uplifted the depot to a fair value of GH¢4.9 million in this year’s statement of financial position as at 28 February 2021. Management has advised that this represents the estimated sales value of the building following Rail Expert Plc’s plan to develop the building as a residential property. The client has confirmed that the property is suitable for conversion into residential apartments at an estimated cost of GH¢1.2 million and has negotiated secured finance for the development with their bank. The development will be subject to the payment of fees to the local council’s building regulator of GH¢173,000. (6 marks)

Required:
Evaluate the client’s accounting treatments above and state THREE (3) audit procedures you will undertake when auditing each of the transactions.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Cash-Settled Share-Based Payment, IAS 37, IFRS 13, IFRS 2, Property Valuation, Regulatory Penalties
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: DEC 2023

AAA – Nov 2020 – L3 – Q3b – Audit Evidence | Evaluation and Review

Describe the auditor’s responsibility for subsequent events that occur before and after the auditor's report is signed.

Question

Describe your responsibility for subsequent events;
i) Assuming the events occurred before your report is signed (5 marks)

ii) Assuming the events occurred after signing your report but before the report was issued. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit report, Auditor's responsibility, Financial Statements, Subsequent Events
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: NOV 2020

AAA – Nov 2020 – L3 – Q3a – Audit Evidence | Evaluation and Review

Discuss whether financial statements require amendment for specific events and describe related audit procedures and audit report implications.

Question

a) For each of the three events below:
i) Discuss whether the financial statements require amendment. (3 marks)
ii) Describe audit procedures that should be performed in order to form a conclusion on the amendment. (4 marks)
iii) Explain the impact on the audit report should the issues remain unresolved. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amendments, Audit Procedures, Audit report, Financial Statements, Subsequent Events
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: NOV 2020

AAA – Nov 2020 – L3 – Q2b – Audit Evidence | Evaluation and Review

Explain significant audit procedures to be performed in the final audit regarding the warranty provision as at 31 March 2019

Question

Explain the significant audit procedures to be performed during the final audit in respect of the estimated warranty provision in the statement of financial position of Manuf Co. as at 31 March 2019. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accounting estimates, Audit Procedures, Financial Statements, Warranty provision
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: NOV 2020

AAA – May 2021 – L3 – Q2 – Audit evidence | Evaluation and review

Recommend audit procedures for validating accounting estimates, evaluate the appropriateness of written representations, and assess the impact of management's refusal to provide representations on the audit report.

Question

Oliso Private Company Ltd has been operating in the manufacturing sector for over a decade. One of its major products is manufacturing equipment, which can reduce toxic emissions in the production of chemicals. The company recently employed a new marketing manager who introduced a series of marketing initiatives. This has resulted in significant growth of the company since the appointment of the marketing manager. One of the initiatives is the warranties that the company gives to its customers. The company guarantees its products for three years, and if problems arise within the period, it undertakes to fix them or provide a replacement for the product.

You are the Senior Manager recently engaged by Integrity Audit Consult responsible for Oliso Private Company Ltd’s audit. You are performing the final review as required by ISA 520 Analytical procedures for the audit and have come across the following issues.

Receivable balance due from Obey Company Ltd: Oliso Private Company Ltd has a material receivable balance due from a customer named Obey Company Ltd. During the year-end audit, your team reviewed the ageing of this balance and found that no payments had been received from Obey Company Ltd for over eight months. Oliso Private Company Ltd however would not allow this balance to be included in the list of balances to be circulated. Instead, management has assured your team that they will provide a written representation confirming that the balance is recoverable.

Warranty provision: The warranty provision included in the statement of financial position is material. The audit team has performed testing over the calculations and assumptions, which are consistent with prior years. The team has requested a written representation from management confirming the basis and amount of the provision. Management is yet to confirm acceptance of the need to issue this representation.

Required:

a) Recommend THREE (3) audit procedures to validate the accounting estimates. (5 marks)

b) For each of the two issues above:

i) Evaluate the appropriateness of written representations as a form of audit evidence. (4 marks)

ii) Describe TWO (2) additional procedures the auditor should perform to conclude on the balances to be included in the financial statements. (6 marks)

c) The directors of Oliso Private Company Ltd have decided not to provide the audit firm with the written representation for the warranty provision as they feel it is unnecessary.

Required:

Explain the steps the auditor of Oliso Private Company Ltd should take to assess the impact of management’s refusal to provide a written representation on the auditor’s report. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accounting estimates, Audit Procedures, Audit report, Management Representations, Receivables, Warranty provision
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: MAY 2021

Topic: Audit evidence

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

You're reporting an error for "AAA – Nov 2017 – L3 – Q5 – Audit Evidence"

AA – Nov 2023 – L2 – Q2 – Audit Evidence

Discuss requirements and methods for designing an audit sample and circumstances when sampling may be inappropriate.

You're reporting an error for "AA – Nov 2023 – L2 – Q2 – Audit Evidence"

AA – May 2016 – L2 – Q7a – Audit Evidence

Identify additional information needed to determine the audit opinion for Musky Fresh Ltd following supplier difficulties.

You're reporting an error for "AA – May 2016 – L2 – Q7a – Audit Evidence"

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

You're reporting an error for "AA – May 2016 – L2 – Q2 – Planning an Audit"

AA – Nov 2022 – L2 – Q4 – Audit Evidence for Engineering Assets and Liabilities

Addressing audit evidence for engineering company assets and liabilities, including procedures for confirmations and plant disposals.

You're reporting an error for "AA – Nov 2022 – L2 – Q4 – Audit Evidence for Engineering Assets and Liabilities"

AA – Nov 2014 – L2 – Q2 – Audit Evidence

Discuss factors affecting sufficiency of audit evidence and audit procedures for current liabilities in Radcliffe Co.

You're reporting an error for "AA – Nov 2014 – L2 – Q2 – Audit Evidence"

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

You're reporting an error for "AA – May 2021 – L2 – Q5 – Audit Evidence"

AA – May 2017 – L2 – SA – Q1 – Audit Evidence

Analysis and identification of unusual features in Abricon Nigeria Ltd.'s profit and loss for audit purposes.

You're reporting an error for "AA – May 2017 – L2 – SA – Q1 – Audit Evidence"

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

You're reporting an error for "AA – May 2023 – L2 – SA – Q1 – Audit Evidence"

AA – May 2024 – L2 – SA – Q3 – Audit evidence

This question tests knowledge on reasons for obtaining letters of representation from clients' management, steps to take if representations are contradicted, and drafting a letter of representation.

You're reporting an error for "AA – May 2024 – L2 – SA – Q3 – Audit evidence"

AA – May 2019 – L2 – Q3 – Audit Evidence

Explanation of materiality, its application stages in audits, and discussion of the "true and fair view" phrase in financial reporting.

You're reporting an error for "AA – May 2019 – L2 – Q3 – Audit Evidence"

AA – Nov 2018 – L2 – Q6 – Audit Evidence

Explains the factors auditors consider for sufficient evidence, reliability principles, and steps to take when audit evidence is insufficient.

You're reporting an error for "AA – Nov 2018 – L2 – Q6 – Audit Evidence"

AA – Nov 2018 – L2 – Q5 – Audit Evidence

Outline the audit tests for purchased goodwill and development projects, and the conditions for recognizing development projects in financial statements.

You're reporting an error for "AA – Nov 2018 – L2 – Q5 – Audit Evidence"

AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting

Evaluate quality control issues and their implications for audit completion, including actions to be taken.

You're reporting an error for "AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting"

AAA – Dec 2023 – L3 – Q3 – Audit Evidence | Evaluation and Review

Assess the risk of material misstatement and audit implications related to goodwill impairment, accounting policies, auditor’s opinion, and going concern.

You're reporting an error for "AAA – Dec 2023 – L3 – Q3 – Audit Evidence | Evaluation and Review"

AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review

Evaluate the accounting treatment of cash-settled share-based payments, regulatory penalties, and property valuation, and outline relevant audit procedures for each.

You're reporting an error for "AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review"

AAA – Nov 2020 – L3 – Q3b – Audit Evidence | Evaluation and Review

Describe the auditor’s responsibility for subsequent events that occur before and after the auditor's report is signed.

You're reporting an error for "AAA – Nov 2020 – L3 – Q3b – Audit Evidence | Evaluation and Review"

AAA – Nov 2020 – L3 – Q3a – Audit Evidence | Evaluation and Review

Discuss whether financial statements require amendment for specific events and describe related audit procedures and audit report implications.

You're reporting an error for "AAA – Nov 2020 – L3 – Q3a – Audit Evidence | Evaluation and Review"

AAA – Nov 2020 – L3 – Q2b – Audit Evidence | Evaluation and Review

Explain significant audit procedures to be performed in the final audit regarding the warranty provision as at 31 March 2019

You're reporting an error for "AAA – Nov 2020 – L3 – Q2b – Audit Evidence | Evaluation and Review"

AAA – May 2021 – L3 – Q2 – Audit evidence | Evaluation and review

Recommend audit procedures for validating accounting estimates, evaluate the appropriateness of written representations, and assess the impact of management's refusal to provide representations on the audit report.

You're reporting an error for "AAA – May 2021 – L3 – Q2 – Audit evidence | Evaluation and review"

Our offerings

Contact Info

Customer

Get In Touch

admin