Saturn Ltd has offered Jack Lee to be the head of their treasury department during the audit of Saturn Ltd. Jack Lee is the audit manager who is currently in charge of Saturn Ltd. Jack Lee discussed the role with Saturn Ltd and intends to accept the appointment.
Which of the following is a safeguard that the audit firm of Jack Lee should adopt?
Cates plc is a large organisation with a complex accounting and information system. Critical to an understanding of the system are the reporting lines and relationships between different departments.
Which of the following represents inherent limitation of a system of internal controls in Cates plc?
The internal auditing department has been assigned to perform an audit of a division. Based on background review, the auditor knows the following about management policies:
•Company policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than three years.
•A significant portion of division management’s compensation comes in the form of bonuses based on the division’s profitability.
The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past three years and uses a standard cost system.
During the preliminary review, the auditor notes the following changes in financial data compared to the prior year:
•Sales have increased by 10%.
•Cost of goods sold has increased by 2%.
•Inventory has increased by 15%.
•Divisional net income has increased by 8%.
It is November and the audit manager is finalising plans for a year-end audit of the division. Based on the above data the audit procedure with highest priority would be to
An auditor performs an analytical review by comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years. The auditor notes a significant increase in the gross margin at one division. The auditor does the preliminary investigation and notes that there were no changes in products, production methods, or divisional management during the year.
Based on the above information, the most likely cause of the increase in gross margin would be
When questions arise on the appropriateness of the going concern assumption, some of the normal audit procedures carried out by the auditors may take on an additional significance. Auditors may also have to carry out additional procedures or to update information obtained earlier. The ISA lists various procedures which the auditors shall carry out in this context.
Which of the following is not included in the list of additional audit procedures that are to be carried out by the auditor?
The internal auditing department has been assigned to perform an audit of a division. Based on background review, the auditor knows the following about management policies:
•Company policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than three years.
•A significant portion of division management’s compensation comes in the form of bonuses based on the division’s profitability.
The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past three years and uses a standard cost system.
During the preliminary review, the auditor notes the following changes in financial data compared to the prior year:
•Sales have increased by 10%.
•Cost of goods sold has increased by 2%.
•Inventory has increased by 15%.
•Divisional net income has increased by 8%.
Which of the following items might alert the auditor to the possibility of fraud in the division?
A firm’s inventory consisted of 5,000 various types of stocks, 100 of which accounted for 75% of the total monetary value. The most recent regular quarterly manual count revealed that there was an unnecessary two years’ supply of the more expensive items.
The control that would best help to correct this oversupply problem is
Dan Lawrence is the auditor of Nava Ltd. The directors are Bernard Russell, Pauli Morin and Cyndi Clifford. They are also the only shareholders owning 35% of total shares by Russell and Morin and the rest by Cyndi. Recent dispute between Russell and Morin arises that Dan believesmay be impossible to resolve. However, Morin requested Dan to provide her with details of all last year purchases through company’s accounts by Russell and Cyndi. Dan Lawrence has all the company’s books and records in his office.
What would be the most appropriate action by Dan Lawrence when Pauli Morin asked him to disclose company’s accounts details?
Deteriora Ltd has recently started up the audit of a new client, Thatch plc. The auditor has identified that Thatch plc has few employees in its accounting department.
Which of the following is the MOST appropriate approach that should be used by Deteriora Ltd under this circumstance?
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TESTED 27 Apr 2024
